Brief survey of Connecticut shareholder law.
Connecticut Shareholder Law Survey
Shareholders in a Connecticut close corporation have the same inspection rights as shareholders in an ordinary Connecticut corporation. See Conn. Gen. Stat. Ann. § 33-946 (West 2001). In order to have standing to exercise these inspection rights, a shareholder must make a demand on the corporation at least five days in advance of the inspection. § 33-946. The demand must be made in good faith and for a proper purpose and state the purpose of the inspection and the requested documents. Id. Upon receipt of a proper demand, a shareholder may then inspect the following documents that are related to the purpose of his or her demand: minutes of meetings of the board of directors, committees thereof and shareholders, records of actions taken without a meeting, accounting records of the corporation and the record of shareholders. Id.
Shareholder Inspection Rights
The corporation’s articles of incorporation or bylaws may not restrict or eliminate the shareholders’ right of inspection; however, the corporation may charge a reasonable cost to the shareholder for labor and materials used in providing the requested documents. §§ 33-946(d), 33-947(d). The court may issue a writ of mandamus to a shareholder who has been denied access to corporate documents for purposes of a properly demanded inspection. Pagett v. Westport Precision, Inc., 845 A.2d 455, 457-58 (Conn. Super. Ct. 2004).
One unreported case states that shareholder inspection rights arise by virtue of the shareholders’ ownership in the corporation and the attendant right to be informed of the state of the corporation. Pagett., 845 A.2d at 459-60. Therefore, in determining whether a proper purpose exists for inspection, the court considers the statute’s remedial purpose and give[s] its liberal construction” in favor of shareholders. Id. at 459.
Connecticut law provides for involuntary judicial dissolution of a close corporation by its shareholders if the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent. § 33-896(a)(1)(A).
Although there does not appear to be any reported cases in Connecticut addressing oppression of minority shareholders in close corporations, there are a number of unreported cases on the topic. See, e.g. Johnson v. Johnson, No. X07CV990060602S, 2001 WL 1042632, at *5 (Conn. Super. Ct. Aug. 15, 2001) (dealing with valuation of oppressive shareholder conduct in pricing shares in close corporation). Another unreported case cites a number of cases from other jurisdictions that define oppressive conduct as actions by the majority interest that are “burdensome, harsh and wrongful” or visible departure from the standards of fair dealing, and a violation of fair play on which every shareholder ..., is entitled to rely.” Stone v. R.E.A.L. Health, No. CV98414972, 2000 WL 33158565, at *9 (Conn. Super. Ct. Nov. 15, 2000). Additionally, at least one unreported case has held that shareholders in close corporations owe each other fiduciary duties in a similar manner as partners in a partnership. Lopiano v. Gedney, No. X05CV020191749, 2004 WL 2943139, at *5 (Conn. Super. Ct. Nov. 15, 2004).
Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See § 33-721. In order to have standing to bring a derivative suit, a plaintiff must be able to adequately and fairly represent the interests of the corporation and have been a shareholder at the time the cause of action arose or received the shares by operation of law from someone who held them at that time. Id.
A plaintiff with standing must then make a written demand on the corporation requesting that the corporation act accordingly. § 33-722. The shareholder is then prohibited from bringing a derivative action until 90 days have passed after the demand was made unless the shareholder is notified that the demand has been rejected by the corporation or waiting the full 90 day period would cause irreparable injury to the corporation. Id. If the corporation then institutes an investigation into the demand, the court may stay the proceedings pending the outcome of the investigation. § 33-723. A derivative suit must be dismissed upon a determination by a disinterested and independent majority of the board, a committee thereof or other appointed individuals that maintenance of the suit is not in the best interests of the corporation. § 33-724.
Although there are instances where a plaintiff may bring either a direct or a derivative action based on the same shareholder conduct, Connecticut does not recognize direct shareholder recovery in derivative actions. See Fink v. Golenbock, 680 A.2d 1243, 1255 (Conn. 1996).