People at shareholder meeting

Shareholder Rights Against the Directors and Officers of a Corporation

David H. Schwartz, INC April 18, 2023

Shareholders in corporations do have rights and can press their claims through class action or derivative lawsuits. In 2022, Twitter, Inc. topped the list of largest shareholder lawsuit settlements at $809,500,000.  

However, not all shareholder grievances or disputes end up in court. When there’s suspected wrongdoing, mismanagement, or a conflict of interests in a corporation, the first step is to notify the Board of Directors, who should investigate and take action. If they don’t, then a lawsuit can be initiated.  

The point is that shareholders do have rights that they can exert if they see the corporation headed off in the wrong direction or if actions by corporate managers or directors are somehow hurting the organization.  

If you as a shareholder or group of shareholders, in a company or corporation located in or around the Greater San Francisco Bay Area suspect something is wrong or causing potential harm to the value of the corporation, contact the corporate litigation attorney at the Law Offices of David H. Schwartz, INC.   

Attorney David Schwartz has 45-plus years of experience in dealing with all matters regarding shareholder rights, and he can help you resolve any dispute or correct any grievance.  

The Law Offices of David H. Schwartz, INC. proudly serves clients in San Francisco, San Jose, Santa Clara, San Mateo, and throughout Alameda County, California. 

The Main Rights of Shareholders

There is a hierarchical order of the rights of securities holders in a corporation or company. First comes the bondholders, second the preferred shareholders, and third, the common stockholders.   

A corporation’s charter generally confers voting rights on the common stockholders. The priority of securities holders comes into play when a company is liquidated. Creditors, of course, must be paid first, followed by bondholders, then preferred stockholders, and finally common stockholders.  

The rights of common stockholders include:  

  • VOTING RIGHTS: Common stockholders get to elect the directors and vote on changes to the corporation, which are done at the annual stockholders’ meeting, either in person, by proxy, or by mail.  

  • OWNERSHIP: Common stockholders are owners of the company in proportion to the shares they hold.  

  • THE RIGHT TO TRANSFER OWNERSHIP: This basically means they can sell their shares on the stock exchange where listed or use buy-sell or buyout provisions in company documents.   

  • DIVIDEND ENTITLEMENT: If the Board votes to award dividends, common stockholders are entitled to their shares.  

  • THE RIGHT TO INSPECT CORPORATE BOOKS AND RECORDS: In addition to access to bylaws and other corporate documents, shareholders are entitled to examine the company’s financials. Under the Securities and Exchange Act of 1934, public companies must disclose their financials.  

  • THE RIGHT TO SUE FOR WRONGFUL ACTS: This generally takes the form of a derivative lawsuit, or shareholder class action lawsuit. The lawsuit will typically carry the name of one shareholder as a representative of the class. 

Further Rights in California

Many corporations register in Delaware since that state’s laws restrict shareholder access to corporate documents. If the corporation is registered in California, the California Corporations Code gives shareholders the right to inspect bylaws, accounting books, records, minutes, and financial statements.   

The Code further empowers the courts to enforce these rights and may appoint an inspector or accountant to audit the books, even requiring the corporation to pay for these services. 

Resolving Shareholder Disputes

An individual shareholder who has had their voting or dividend rights revoked or not honored for one reason or another can seek individual redress against the Board of Directors.   

When a larger issue is involved that affects shareholders as a group, such as wrongdoing by a corporate officer or director, or even a question over where the company is headed, then the issue must first be brought to the attention of the Board for review, investigation, and possible remediation.  

If the Board fails to act on an issue brought to its attention, it is possible to proceed with a class action lawsuit. However, this is not a do-it-yourself proposition.   

You’re going to need the legal counsel and representation of an experienced corporation litigation attorney, who will assess the situation and advise you of your best options going forward. Negotiations and even making further demands on the Board might be the best initial option, with the possibility of a lawsuit possibly helping to move a resolution forward. 

Dedicated Advocacy for Shareholders and Businesses

Attorney David Schwartz has nearly 50 years of experience in corporate disputes and lawsuits. He stands ready to discuss the issue with you and your fellow shareholders to exercise full rights and resolve the situation at hand.  

If you, as a shareholder or group of shareholders, have an issue with corporate governance in the Greater San Francisco Bay Area, reach out immediately to the Law Offices of David H. Schwartz, INC. for strong and dependable legal assistance. Rely on the experience and knowledge of Attorney David Schwartz to help you navigate the legal system to redress any wrongs.