Shareholder Rights in a Private Corporation

If a corporation doesn’t protect them, Oregon law will

By Doug Mentes, Esq.

Shareholder rights are an issue for large and small Oregon corporations—although most corporations in Oregon are smaller, private or close corporations.

Stock shares provide a secured ownership interest in a business. The owners of a company’s stock are the owners of the company. Larger corporations offer different classes of stock, while smaller organizations may offer only one class of stock. The most common forms of ownership interest in a corporation are common stock, preferred stock and bonds. A bondholder’s rights are determined by an agreement between the bondholder and the corporation. But, for stock shareholders, many of their rights are provided under state law.

What rights do shareholders have?

Some corporations may divide their classes of stock into two classes, preferred and common stock. The basic difference between the two classes is that preferred stock shareholders have priority over common shareholders—meaning they will receive dividends before common shareholders. However, both classes generally receive the same rights under Oregon corporate law.

Those basic shareholder rights include:

  • The right to vote on fundamental decisions of the corporation, including election of the board of directors, mergers and liquidation
  • An ownership interest, meaning shareholders have a claim for a portion of the assets of the company in proportion to their ownership interest
  • Right to dividends, or profits of the corporation, when the board of directors decides to issue dividends instead of reinvesting profits into the company
  • The right to transfer their ownership interest and the ability to transfer it for fair value
  • The opportunity to inspect corporate books and records
  • The right to sue the corporation for wrongful acts

Shareholder right to inspect records

Oregon law contains a significant amount of rules describing the shareholder’s right to inspect corporate records, as well as the corporation’s obligations to maintain those records. Information that the corporation must keep for shareholder inspection includes:

  • Articles of incorporation
  • Corporate bylaws
  • Resolutions related to corporate stock
  • Minutes of corporate board of directors’ meetings
  • Written communications with shareholders for previous three years
  • Names and addresses of board of directors and officers
  • Most recent annual financial report of corporation

Shareholders can obtain further records if the shareholder can demonstrate he or she is seeking those records in good faith and for a proper purpose.

Do shareholders have recourse if their rights are violated?

If directors, majority shareholders, or those in control of the corporation act in an oppressive, illegal or fraudulent manner, Oregon corporate shareholders can seek damages or other remedies against the corporation. Oppressive conduct is defined under Oregon case law as burdensome, harsh and wrongful conduct; a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members; or a visual departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely. Similar, but in addition to these guidelines, majority shareholders in an Oregon corporation owe a fiduciary duty to minority shareholders.

Besides suing the corporation, shareholders are entitled to bring another form of action on behalf of the corporation: the derivative lawsuit, which is a lawsuit brought by a shareholder or group of shareholders on behalf of the corporation alleging the corporation has been harmed by some action. Oregon shareholders must meet certain requirements under the law prior to filing a derivative lawsuit.

If a corporate director or officer fears an action may violate the rights of the company’s shareholders, or if a shareholder believes those in control of the corporation have not followed the law or corporate policy, they should immediately seek out advice from an experienced Oregon corporate attorney before the corporation is harmed.

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