Corporate governance is a system of rules and responsibilities delegated to different groups within a corporation. Shareholders are given certain rights as owners of corporations. Honoring these rules is the objective of corporate governance as the law protects these rights. Corporate governance exists to uphold fairness for all shareholders within a corporation.
However, this isn’t always the case. Sometimes an aggrieved shareholder of a corporation may need to sue the corporation to either prevent a wrong or to protect that shareholder’s ownership of shares. Depending on the shareholder’s complaint, they must decide if they wish to file a lawsuit.
Shareholders have rights to vote on corporate decisions. Shareholders can vote on a variety of company matters including company acquisitions, mergers or liquidations of company assets and voting in officers. Voting takes place when corporations have their annual meetings. They have the right to vote in person or by proxy if they can’t attend.
All shareholders have the right to inspect their company’s financial information. By looking at the financial information about a company, shareholders are given a chance to view how the corporation is performing. This information is critical to influencing shareholders’ decisions to either buy more shares or sell off what they already own. This right is not important to shareholders in public corporations because they can get the same information from the Securities and Exchange Commission. Public corporations file their financial information each year, and this information will be provided to any individual who is interested in buying shares. Private companies don’t have to file this information with the SEC, while shareholders in private corporations still have the right to see any financial information on companies.
If corporations are distributing profits using dividends, each person invested has the right to receive them. The amount of these dividends are set by the company’s corporate officers. These amounts can fluctuate based on the corporations’ earnings for that year. Some corporations with low earnings, net losses or have other plans with the profits to improve their businesses may not be able to pay out dividends. However, corporations are obligated to pay every shareholder if they make a profit. They cannot select a few people to pay profits to and forget about the rest of the shareholders.
Class action lawsuits allow a group of individuals who have shared common damage to pursue litigation, even when their claims would be redundant or insignificant. When shareholders suffer damages from the corporations in which they hold shares, they can pursue one of two legal actions. Shareholders may choose to band together in a “class” and bring a class-action lawsuit. They also have the option to file a shareholder derivative lawsuit, where a shareholder can sue company management on behalf of all shareholders.
Attorneys at Hach Rose Schirripa & Cheverie LLP can help shareholders file a lawsuit on behalf of the corporation or on behalf of the shareholder’s interests. Contact our law firm at (212) 213-8311 for a consultation.