Shareholder litigation usually involves certain officers of the company not abiding by their fiduciary duties owed to the shareholder. Officers of a company, especially in small or closely held corporations, begin to freeze out or operate in their own interest at the cost of the minority shareholder.
This can take many forms. One example is self-dealing, where an officer makes deals on behalf of the corporation with himself or with other companies the officer has a connection with. Another example is maintaining excessively large amounts as retained earnings for several years rather than paying dividends. Another game played that breaches the fiduciary relationship is when the majority shareholders as officers of the corporation begin to pay themselves excessive salaries. This is done so that capital can be removed from the company without having to pay all shareholders.
Conflicts of interest also arise in shareholder litigation matters. Officers’ decisions need to full disclose the conflicts prior to the corporation acting.
Shareholders are sometimes kept in the dark as to the happenings of the corporation. Shareholders have rights to inspect corporate records and this also becomes an issue in shareholder litigation matters.
Another shareholder issue that arises often in Silicon Valley is dilution of a shareholder’s stake in a company. This often happens when a company seeks to obtain investors and does so at the expense of earlier investors.
If you have issues related to a potential shareholder suit you would like to discuss, feel free to call an attorney at the Law Offices of Ara Jabagchourian, P.C. to set up a meeting.