I am a Minority Shareholder in a Small Company, and I Believe One of the Other Shareholders is Harming the Interests of the Company. Can I Sue the other Shareholder?
The likelihood of you succeeding in a particular lawsuit depends on the facts of your case. However, it is important to understand that a minority shareholder cannot simply bring suit in his or her own name in order to vindicate harm that the company has suffered.
If you are a minority shareholder in a Massachusetts corporation, and you want to sue to redress an injury suffered by the corporation (or suffered by all shareholders generally), you have to bring what is called a derivative lawsuit, which means you are bringing suit on the corporation’s behalf. Before you can do that, you have to first demand that the controlling shareholders or board of directors pursue that claim. You are required to make that demand even if you believe that doing so would be futile (for example, because the controlling shareholders are involved in the alleged wrongdoing). If the corporation either refuses to bring suit or ignores your request for at least ninety days, then you can move forward with your derivative lawsuit.
You should note that if you are a member of a Massachusetts limited liability company, as opposed to a corporation, you do not have to make demand on the company if you believe that demand would be futile. However, your complaint should describe in detail the reasons why you believe demand would have been futile. If another shareholder has engaged in conduct that harms you directly and in a way that is unique from that of all other shareholders, such as by trying to freeze you out of the company, you need not bring your case as a derivative suit and can bring claims in your own name.
– By Stephanie Parker