Massachusetts Shareholder Law Survey
Right to Inspect Books and Records
A shareholder has the right to inspect and copy corporate books and records during regular business hours. See Mass. Gen. Laws Ann. 155 § 22. The shareholder must give five business days notice in writing. The shareholder has the right to see minutes from board meetings, accounting records, and a list of shareholders. Id. 156D § 16.02(b).
The demand must be made in good faith and for a proper purpose. The demand must state the purpose and which records he wants to inspect. The requested records must be “directly connected” with his proper purpose. Id. 156D § 16.02(c). The corporation need not comply with the demand if it in good faith determines that producing the requested records would adversely affect the corporation. Id. 156D § 16.02(c)(4).
Only shareholder(s) who own at least 40% of the total combined voting power of all shares outstanding and are entitled to vote on dissolution may petition for an involuntary dissolution and only if deadlock has occurred. Id. 156D § 130. Involuntary dissolution is not available for abuse of power or waste. Id. 156D § 130, cmt. 2. Shareholders in a close corporation owe each other the same fiduciary duty that partners owe each other. Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 515 (Mass. 1975). Shareholders must not act out of “avarice, expediency or self-interest in derogation of their duty of loyalty to the other stockholders and to the corporation.” Id.
Shareholders may bring a direct action for breach of fiduciary duty of the shareholders can show fraud against them individually, if it would be difficult to establish breach against the corporation, or if recovery by the corporation would not provide proper relief to the shareholders. Crowley v. Communications for Hosp., Inc., 573 N.E.2d 996, 1004 (Mass. App. Ct. 1991). The test to determine whether a suit is derivative or direct is whether the shareholder “suffered an injury distinct from that suffered by the corporation.” Id.
In a close corporation, if the majority shareholder fails to disclose material facts affecting the minority interests, this is a direct claim rather than a derivative suit. Schaeffer v. Cohen, Rosenthal, Price, Mirkin, Jennings, & Berg, P.C., 541 N.E.2d 997, 1001 (Mass. 1989).
To commence a derivative suit, the shareholder must own shares at the time the act complained of occurred. Mass. Gen. Laws Ann. 156D § 7.41. The shareholder must first make a written demand on the corporation that it take the desired action. Id. 156D § 7.42(1); Yameen v. Eaton Vance Distributors, Inc., 394 F.Supp.2d 350, 356 (D. Mass. 2005). The corporation then has 90 days to take the requested action or reject the demand. Mass. Gen. Laws Ann. Id. 156D § 7.42(1).
In a shareholder derivative action, the complaint must plead “with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or comparable authority . . . and the reasons for his failure to obtain the action or for not making the effort. Id. 156D § 7.42. The demand must be verified by oath. A derivative suit may not be dismissed or settled without court approval. Id. 156D § 7.45.