Company Shareholders’ Direct Claims - Protecting the Rights of the Shareholder

Are you a shareholder who wants to redress the harm done by your company’s directors/executive officers?

Then you should consider filing a shareholder’s direct claim.

Continue reading more below.

Similar to shareholder derivative claims, the potential grounds for filing a direct lawsuit are numerous as well, ranging from illegal acts by individual directors and in our last blog post we explored shareholder derivative claims and how a shareholder may seek to redress harm done by his/her company’s director/executive officers. The question then arises, “how can a shareholder seek to rectify harm that was done to shareholders themselves.”

A shareholder may directly sue the company, an executive officer, or director if one of these individuals take actions resulting in direct harm to the shareholder. This is a shareholder direct claim. This situation is rare because it’s difficult for a shareholder to prove that he/she has suffered a specific harm as a result of actions by the executive officers or directors. However, unlike shareholder derivative litigation, if you are successful in filing a direct lawsuit, then any damages will be awarded to you personally as compensation for your shares’ loss of value. Some examples of direct suits involve contract rights related to shares, rights related to the recovery of dividends, and rights to review the records of the corporation. 

“What is the difference between a shareholder direct claim and a shareholder derivative claim?” 

Direct claims are based on legal rights that belong to the individual shareholder. The plaintiff shareholder brings his own claim in his own name to substantiate the violation of legal duties to himself and seeks a legal remedy for his own benefit. On the other hand, the cause of action in a derivative claim belongs to the corporation, not the shareholder. You can ask yourself the following:

1) Who is being harmed: the corporation or the shareholder?

2) Who would receive the benefits of recovery: the corporation or the shareholder?

If the answer to either of these questions is “the shareholder,” the claim will likely be considered direct. If the answer to either of these questions is “the corporation,” the claim will likely be considered derivative.

Courts have adopted the “special injury” test to determine whether a claim states a direct or a derivative action.  An individual plaintiff is required to show that the injury suffered is separate from the harm suffered by the shareholders generally or that its contractual rights as a shareholder are involved, e.g., the right to vote.

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Our attorneys represent clients in Miami, Florida in shareholder direct lawsuits and derivative litigation against corporate officers, directors and majority shareholders. If you have questions and would like to speak with an attorney, please call (954) 361-5370 or email colin@colinblackwood.com.