When you purchase shares in a corporation, you become entitled to certain legal rights. Under normal circumstances, exercising these rights is a non-issue, and you can freely benefit from being a shareholder without a problem. However, if your shareholder rights are ever violated, you may need to bring a direct or derivative suit in order to protect your legal and financial interests.
What Rights Do Shareholders Have?
Broadly speaking, the shareholders in a corporation will be entitled to certain basic rights. These may vary depending on the class of stock they own (for example, “common” shareholders may not have the same rights as owners of “preferred” stock), but generally they remain similar across companies. These rights include:
- The right to freely purchase and sell stock
- The right to collect a dividend
- The right to participate and vote in shareholder meetings
- The right to elect board members
- The right to inspect the company’s books and financial statements
- The right to sue if their rights are violated
How Might Your Rights Be Violated?
A shareholder’s rights may be violated whenever they are prevented from obtaining the full benefits of their shares in a company, or when they are prevented from exercising their rights. Interference with any of the rights listed above can potentially become grounds for a lawsuit.
Notably, it is not just the company that can violate a shareholder’s rights. In some cases, for example, a majority shareholder may also create legal issues when they abuse their control of a company’s shares, preventing minority shareholders from getting the benefits they deserve. In either case, though, it may be necessary for a shareholder to enforce their rights via litigation.
What Can a Direct Suit Do?
A direct suit is the term for a lawsuit brought against a company, its directors, or its executive officers for alleged harms against the shareholder’s rights. These are used to address harms against the shareholder themselves, such as being denied their voting rights at a shareholder meeting, or being denied a dividend they are entitled to. If a company is found to have violated a shareholder’s rights in a direct suit, any compensation awarded will go to the affected shareholders.
What Can a Derivative Suit Do?
A derivative suit, on the other hand, is one that involves a shareholder suing on behalf of the corporation against the company’s executives, directors, or other third parties (such as the company’s business partners). This is typically done when there has been some kind of serious harm against the company by an executive or director, such as when they breach their fiduciary duty to the company. It may also be done if the executives or directors, for whatever reason, refuse to pursue a lawsuit.
What Should You Do?
If you are a shareholder in a company and your rights have been violated, you may have legal options available to you. That is why you should speak to the Law Offices of Peter Sverd. They can help you explore the facts of your case, and ensure you get the best possible outcome for your circumstances.