Brief survey of Maine shareholder law.
Maine Shareholder Law Survey
Shareholder Inspection Rights
Shareholders in Maine close corporations have the same inspection rights as those in ordinary Maine corporations. See Me. Rev. Stat. Ann. tit. 13-C § 1602 (2008). During regular business hours at the corporation’s principal office a shareholder may, upon written demand at least five days in advance, inspect and copy a limited number of documents pertaining to the corporation. § 1602(2). The items available for inspection and copying under this section are the corporation’s articles of incorporation, bylaws, resolutions of the board with respect to classes or series of shares, minutes of shareholders’ meetings and records of actions taken without a meeting in the previous three years, written communications to shareholders in the previous three years, names and business addresses of current officers and directors and the corporation’s most recent annual report. § 1601(5).
Shareholders who meet additional standing requirements have the right to inspect and copy a wider range of documents than those stated above. § 1602(3). Shareholders who make a good faith demand for a proper purpose that specifies the records to be inspected may inspect and copy the minutes of meetings of the board, committees thereof and shareholders, accounting records of the corporation and the record of shareholders provided those documents are directly connected to the stated purpose of the demand. § 1602(3), 1602(4).
The right of inspection may not be eliminated or limited by the corporation’s articles of incorporation or bylaws; however, the corporation may charge a reasonable cost to the shareholder for labor and materials used in providing the requested documents. §§ 1602(5), 1603(3). Additionally, if a corporation refuses to comply with a properly demanded inspection for a reason other than a good faith belief that there is a reasonable basis to doubt the right of the shareholder to conduct the inspection, the court may order the corporation to comply with the demand and award the shareholder expenses incurred in enforcing the inspection right. § 1604.
Furthermore, a director of a corporation has the right to inspect and copy the books, records and documents of the corporation to the extent reasonably related to the performance of his duties as director but not for any other purpose or in a way that would violate his duties to the corporation. § 1605(1).
Maine law provides for involuntary 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.” § 1430(2)(B). Although the statute does not define oppression, Maine courts have discussed oppressive conduct in terms of the fiduciary duties majority shareholders owe to the minority and in light of the reasonable expectations of the minority shareholders in participating in the corporation. Napp v. Parks Camp, Ltd., 932 A.2d 531, 538 (Me. 2007). Additionally, in Napp, the court cites the frequently used definition of oppression as: “[B]urdensome, harsh and wrongful conduct; a lack of probity and fair dealing in the affairs of the company to the prejudice of some of its members; or a ... departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely.” Id. (citing Polk v. Hergert Land & Cattle Co., 5 P.3d 402, 404 (Colo.Ct.App.2000). A shareholder seeking dissolution based on oppressive conduct has the initial burden to prove “overreaching conduct” by the majority and, if successful, the burden then shifts to the majority shareholder to demonstrate a legitimate business reason for the conduct. Id.
A judicial determination of whether conduct is oppressive is fact intensive. Id. For example, shareholders setting excessive compensation for themselves, inadequate dividends, unequal use of corporate assets for personal use and mismanagement and waste of corporate assets have all been deemed oppressive conduct justifying dissolution. Id.
On the other hand, failure to maintain a market for the sale of corporate stock, failure to pay dividends despite cash-laden status of the corporation and compensating certain family member shareholders have all been held not to rise to the level of oppression so as to justify dissolution. Id.
Furthermore, when shareholders assume control and act as directors in a close corporation, they owe fiduciary duties to the minority interest. See Moore v. Maine Indus. Servs., Inc., 645 A.2d 626, 628-29 (Me. 1994).
Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. § 752. In order to have standing to bring a derivative suit, a plaintiff must be capable of adequately and fairly representing 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. Before bringing a derivative action, the aggrieved shareholder must make a demand on the corporation seeking appropriate relief and then wait 90 days to allow the corporation an opportunity to pursue the litigation unless the demand is rejected or irreparable harm would result to the corporation by waiting the entire 90 day period. § 753.
If the corporation initiates an investigation into the allegations, the court may stay the derivative proceedings pending the outcome of the investigation. § 754. 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. § 755. Furthermore, the court must approve a settlement or discontinuance of the suit and may award costs to a successful plaintiff or to a defendant if the suit is brought without reasonable cause or for an improper purpose. §§ 756-57.
Maine follows the general rule that if a shareholder is seeking to redress an injury to the corporation, the claim must be brought derivatively. See id. at 629-30. If the injury to the shareholder is separate and distinct from that of the corporation and other shareholders, the aggrieved shareholder may bring a direct action individually. Id. However, the court in Moore notes that it is often difficult in the close corporation context to distinguish between when acts or omissions give rise to a direct or derivative claim. Id.