The managing directors and executive officers of any company are in large part responsible for the success of the entity. However, when management takes actions that are damaging to the company and jeopardize its viability, shareholders have a legal right to intervene as representatives of the company. Shareholders suing on behalf of their companies may need skilled commercial litigation lawyers to guide them. Based in the Fort Lauderdale area, Stok Folk + Kon has a knowledgeable team of attorneys who can assist shareholders in bringing legal actions to protect or restore the welfare of their company.The Legal Rights of Corporate Shareholders
When a corporation’s management brings harm to the company through their actions, the company’s shareholders can take legal action to prevent any further damage. The resulting cause of action is called shareholder or derivative litigation. Although shareholders may bring this type of action against any third-party actor causing harm to the company, including its directors, board members, officers, or employees, company insiders who provide top-level management are usually the targets of such litigation. Conduct that often may cause shareholder lawsuits includes conflicts of interest, failure to properly execute a sale or merger of the company, a breach of fiduciary duty, fraud, insider trading, and the waste of corporate assets.
This type of litigation serves as a way to keep managing directors and officers accountable in their dealings with the corporation. Management that is engaged in misconduct is not likely to file suit on behalf of the company against themselves. Derivative litigation provides a means of legal redress for shareholders should mismanagement of the company occur.
In derivative litigation, shareholders are not bringing suit against management for their personal losses due to the mishandling of the company. Instead, they function as nominal plaintiffs, bringing suit on behalf of the actual company or corporation. Because of this structure, the alleged wrongdoing by the defendant managers is the main issue in a shareholder suit, and the company’s interest is generally portrayed as adverse to the interests of the company management.
Before shareholders file suit, however, they generally need to file some type of demand on the board, formally requesting that management discontinue its harmful actions, or bring suit on behalf of the company to prevent further harm. If shareholders and management cannot reach an agreement, and no action is filed, the shareholders may file an action on behalf of the company against the specific managers of the company who committed the alleged misconduct.
Possible outcomes of a shareholder action include court-ordered reform of corporate governance, removal of the individuals committing the wrongdoing, and monetary damage awards. If the shareholders are successful in their claims, they generally do not gain any direct monetary or business benefit. Any proceeds of litigation are directed back into the company.Seek Legal Guidance in Fort Lauderdale for a Business Dispute
Shareholder litigation can be a complex matter that requires the assistance of experienced legal professionals. At Stok Folk + Kon, we provide clients in Fort Lauderdale and the surrounding cities with business law attorneys to advocate on their behalf. Since 1999, we have been serving entities and individuals in Hollywood, Fort Lauderdale, and elsewhere in South Florida. Call us today at (954) 237-1777 or contact us to schedule a consultation.