New York is a popular forum both nationally and internationally to resolve shareholder disputes of all types. Shareholder disputes can cast a wide net in the size and scope of the company, from family businesses, closely held corporations, partnerships, S Corporations, even up to large publically traded corporations. Shareholder disputes can take a cause of action in many forms, whether that be derivative suits, breach of shareholder agreements, demand on corporate board, leveraged buyouts, breach of fiduciary duty, claims arising in partnerships, succession planning, uneven financial commitment or even disparities in compensation. Suits can be brought on behalf on any level of ownership, whether that be the majority owner to the most-minute shareholder and advocated from any position, as in abuse of a majority position, or unwillingness of a small faction to comply. Other transgressions may include dispute over shareholder voting agreement, appointment of shareholder proxy voter or even dissolution of a corporation. Parties often claim abuse of control, wasting of corporate assets, or even gross mismanagement. Failure of a corporate director or officer to act in good faith, or breach of fiduciary duty of care to the corporation, or even an individual profiting at the expense of the corporation, are all relevant grounds to bring a derivative suit.
Often suits of this nature evolve out of the transition or succession of a family close corporation. It can be a delicate task to both preserve familial ties but also advocate for a shareholders rights. Specializing in this area of practice is a necessity to carefully navigate these suits all the while preserving viable longstanding small businesses. As a client contemplating a derivative suit, effective counsel can alleviate the complexities and streamline an effective approach to advocate for your rights. Typically, a derivative action is two fold; first, is the shareholders bring suit compelling the corporation to sue. Second, is a suit by the corporation, asserted by shareholders on it’s own behalf, against those who may be liable to the corporation as an entity. Essentially it is two actions, one against the corporate directors for failing to sue, and second the corporation asserting its own rights. A derivative action allows the shareholders to redress and monitor harm to the corporation caused by the directors of the corporation. It can be an effective tool as even a small shareholder to hold the corporate board accountable and advocate against misfeasance and malfeasance.
Because of New York’s unique body of business law it is essential for aggrieved parties in shareholder disputes to be represented immediately upon realization of their claim. New York has specific formalities and requirements for filing and pleading of a shareholder action that if not satisfied exactly can result in a claim be dismissed altogether. New York law also allows derivative action by members of an unincorporated association, such as a limited partnership, or investors of a venture capital firm, or even shareholders of a condominium or co-op building. Aggrieved parties represented early in the process with careful maneuvering at the advice of a qualified attorney can greatly enhance their chances of success in a larger action. A shareholder derivative action is to the benefit of all shareholders if a corporation is believed to a have suffered injury.