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Minority Shareholder Rights and Remedies under Illinois Law
Being a minority shareholder in a closed corporation can be a risky venture, given their relative lack of power or control over the actions of the corporation. Minority shareholders are not powerless, however, and benefit from several rights and remedies afforded them under Illinois law. These rights and remedies include: (1) the right to notice and voting at shareholder meetings; (2) the right to inspect a company’s books and records; (3) the right to dissent and receive payment for shares in certain instances; (4) the right to maintain a derivative action; (5) remedies for breach of fiduciary duty; and (6) statutory remedies for shareholder oppression.Right to Notice and Voting at Shareholder Meetings
Shareholders with voting rights have a right to advance notice of shareholder meetings and also the right to have an “inspector” appointed. An inspector ensures that the proceedings and all voting are conducted fairly, properly, and impartially. If the majority shareholders refuse to hold an annual meeting, a minority shareholder can petition the court to require the company to hold one.Right to Inspect a Company’s Books and Records
Minority shareholders are entitled to examine the “books and records of account” of a company for a “proper purpose.” “Books and records of account” has been broadly interpreted by courts to mean any corporate records necessary to derive information relevant to the shareholder’s examination. A “proper purpose” has generally been interpreted to mean for the purpose of protecting the interest of the company and not simply for mere curiosity.
A minority shareholder wishing to examine a company’s books and records must make a demand on the company that identifies which records the shareholder seeks to inspect and the purpose of the inspection. If the corporation refuses the demand, a minority shareholder has the right to file suit to compel the examination. If the court finds that an officer or agent of a company wrongfully refused a request to examine the company’s books and records, the officer or agent will be liable to the shareholder for “a penalty of up to ten per cent of the value of the shares owned by such shareholder, in addition to any other damages or remedy afforded him or her by law.” 805 ILCS 5/7.75(d).Right to Dissent and Receive Fair Market Value for Shares
In certain instances, a minority shareholder has the right to register dissent from a corporate action and receive payment for the fair value of his shares. Such instances include mergers and consolidations, consummation of a sale, lease or exchange of all, or substantially all, of the property and assets of the company, alteration of the articles of incorporation that materially and adversely affect the rights of the minority shareholder, and any other instances which the corporate documents provide for shareholder dissent.Right to Maintain a Derivative Action
When a company suffers harm at the hand of a majority shareholder, director, or officer, a minority shareholder is not forced to simply stand by helpless. Illinois law permits the shareholder to file a “derivative action” on behalf of the company. A derivative action is brought in the company’s name, rather than the shareholder’s individual name and seeks to recover damages owed to the company. To maintain a derivative action, a shareholder must be able to show that before filing suit he made a demand upon the company for action and such demand was denied, or that such demand would have been futile. Illinois permits shareholders who successfully bring derivative actions to recover their attorney fees.Remedies for Breach of Fiduciary Duty
Directors and officers of a corporation owe fiduciary duties to the shareholders of the corporation. Similarly, managers of manager-managed LLCs owe fiduciary duties to the members of the LLC, and each member of a member-managed LLC owes fiduciary duties to the other members. These fiduciary duties include the duty of care, the duty of good faith and fair dealing, the duty to disclose, and the duty of loyalty (i.e. the duty not to engage in self-dealing or otherwise use one’s position to further personal interests at the expense of the company or other shareholders/members).
In Illinois, majority shareholders in a closely held corporation owe fiduciary duties to minority shareholders. Majority shareholders are required to deal fairly with minority shareholders and may not use their majority shareholder status to oppress the minority shareholders. If a majority shareholder, director, officer, manager, or member fails to act in good faith or with honesty, candor or loyalty, this constitutes a breach of fiduciary duty and creates a cause of action for which minority shareholders and members can sue to recover damages and attorney’s fees.
Our Chicago minority shareholder and LLC member attorneys have litigated minority oppression and breach of fiduciary duty lawsuits for decades.
Super Lawyers named Chicago and Oak Brook shareholder oppression Peter Lubin and Patrick Austermuehle a Super Lawyer and Rising Star respectively in the Categories of Business Litigation, Class Action, and Consumer Rights Litigation. Lubin Austermuehle’s Oak Brook and Chicago business trial lawyers have over thirty-five years experience in litigating complex shareholder oppression, minority shareholder rights, squeeze-out and freeze-out business and commercial litigation disputes. We handle emergency business lawsuits involving injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination, intellectual property, and trade secret lawsuits along with many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud.
Lubin Austermuehle’s DuPage County commercial litigation attorneys have more than thirty-five years of experience helping business clients unravel the complexities of Illinois and out-of-state business laws. In business divorce litigation, we try to achieve the following goals in representing an allegedly oppressed shareholder either through judgment or at the negotiating table:
- uying-out of an shareholder/partner or LLC member stake in the business or professional partnership;
- regaining misappropriated monies or business interests taken in breach of fiduciary duties;
- obtaining value for stolen business opportunities or misuse of corporate funds for solely owned ventures;
- distribution of dividends or excess monies being held which are not needed for business expenses or needed to pay pass through income taxes generated for the members, partners or shareholders.
- management compensation adjustments changes;
- employee and officer changes; and
- implementation of equitable business practices consistent with business judgment and which no longer give rise to fiduciary breaches.
Our Dupage County business divorce lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and consumer rights, wage claim, and individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices near Aurora and Elgin, we serve clients throughout Illinois and the Midwest.
If you’re facing a business owner or a minority shareholder facing a shareholder oppression or breach of fiduciary lawsuit or the possibility of one, and you’d like to discuss how the experienced Chicago business divorce lawyers at Lubin Austermuehle can help, we would like to hear from you. To set up a consultation with one of our Chicago shareholder rights attorneys and Chicago business trial lawyers, please call us toll-free at (833) 306-4933 or contact us online.