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California Shareholder Rights: Close Corporations

shareholders.jpgA close corporation is generally a mid-sized or small company that has a low number of shareholders. By operating as a close corporation, these companies are able to receive certain exemptions from corporate regulations. However, there are still many protections available for the shareholders of these corporations. If you believe your shareholder rights have been violated, an experienced San Jose business litigation attorney can help.

Inspection Rights

One of the more useful tools for shareholders of close corporations is available under Section 1600 of the California Corporations Code, which grants shareholders inspection rights. This regulation gives minority shareholders access to information that they would have otherwise struggled to receive. In general, shareholders have the ability to inspect information related to:

  • The identities and interests of the other shareholders;
  • Accounting books;
  • Financial records; and
  • Official minutes from corporate meetings.

Legal Options for Minority Shareholders

The following is a list of legal options available to minority shareholders:

  • Direct legal action: In certain circumstances, minority shareholders may be required to take individual legal action to address damage to their financial interests. This type of action is reserved for when the damage was done to the specific interests of a shareholder, or to the interests of a certain class of shareholders. It does not make sense when the damage was done to the company as a whole. Some examples of when California minority shareholders should consider legal action include compelling the payment of an unfairly withheld dividend, enforcing their shareholder voting rights, or to protect their financial interests from unlawfully caused damage.
  • Derivative suit: This type of action is brought by a minority shareholder on behalf of the corporation, in an effort to rectify wrongs done against the corporation. This usually occurs when the controlling officers of the company have declined to bring any legal action. More often than not, the reason the controlling officers declined to bring action is because the action is against a corporate insider, though that is not always the case. Ultimately, this option gives minority shareholders a chance to address harm that was done against the company as a whole. Any damages recovered will usually go to the company.
  • Forcing involuntary dissolution: In some circumstances, California law allows minority shareholders of close corporations to bring involuntary dissolution actions. This is reserved for situations when the controlling interests of the corporations have abused their power, neglected their duties or consistently mistreated minority shareholders. Taking action to force the dissolution of a company is a major move, but it may be prove to be necessary in order to protect your shareholder interests.

Contact an Experienced San Jose Business Litigation Attorney

At Diemer, Whitman & Cardosi, LLP, our San Jose business litigation attorneys have extensive experience handling all aspects of shareholder disputes. If your rights were violated, we can help. We know what it takes to protect your interests without busting your budget. Our firm proudly serves business law clients throughout the Bay Area. Please do not hesitate to contact our office today at 408-971-6270 to learn more.

Sources:

https://www.law.cornell.edu/wex/close_corporation

https://busites_www.s3.amazonaws.com/fryarlawfirmcom/content/pdfs/CalCode1600.pdf

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=corp&group=01001-02000&file=1800-1809

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