Minnesota Shareholder Law Survey
Shareholder Inspection Rights
Shareholders of closely held corporations that are not publicly traded have the right to inspect and copy certain documents pertaining to the corporation. Min. Stat. Ann. § 302A.461(4) (West 2005). Shareholders have an absolute right, upon written demand, to inspect and copy the following corporate documents: the share register, records of shareholders’ and board proceedings for the last three years, articles of incorporation and bylaws, certain financial statements and reports distributed to shareholders, names and business addresses of current directors and officers, voting trust and shareholder control agreements and certain other agreements and contracts. § 302A.461(2). The corporation must make the requested documents available for inspection and copying within ten days of receipt of the shareholder demand. § 302A.461(3). Inspection requests under this section may only be made for a proper purpose that must be related to the requesting shareholder’s interest as a shareholder. Id. Furthermore, a court may issue a protective order allowing the corporation to withhold certain confidential information found in records of proceedings of the board if premature disclosure through the inspection demand would injure the corporation. § 302A.461(4).
If a corporation refuses to permit a properly demanded inspection, the requesting shareholder may seek a writ of mandamus directing the corporation to comply provided the shareholder has a good faith proper purpose for the inspection. Fownes v. Hubbard Broad., Inc., 225 N.W.2d 534, 536 (Minn. 1975). Furthermore, the shareholder seeking an inspection does not always have to prove damages caused by the corporation’s failure to comply with the inspection demand as other equitable relief, such as an accounting, is also available. Blohm v. Kelly, 765 N.W.2d 147, 158 (Minn. Ct. App. 2009).
Shareholders in closely held corporations may seek judicial dissolution of the corporation if the “directors or those in control of the corporation have acted in a manner unfairly prejudicial toward one or more shareholders in their capacities as shareholders or directors.” § 302A.751((1)(b)(3). A buy-out, partial liquidation or other form of equitable relief is also available to an aggrieved shareholder. § 302A.751(3). In determining whether and in what form relief should be granted to a minority shareholder, the court “shall take into consideration the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation and the reasonable expectations of all shareholders as they exist at the inception and develop during the course of the shareholders' relationship with the corporation and with each other.” § 302A.751(3a).
The statutory term “unfairly prejudicial” is intended to be interpreted liberally and prejudicial conduct has been found when the reasonable expectations of a shareholder are frustrated. Bolander v. Bolander, 703 N.W.2d 529, 552 (Minn. Ct. App. 2005). In determining what a shareholder’s reasonable expectations were, any written agreements between the parties are presumed to reflect those expectations. Id. In the absence of a specific agreement however, the court should examine “the understanding that objectively reasonable close-corporation shareholders would have reached if they had bargained over how their investments should be protected when the venture began.” Haley v. Forcelle, 669 N.W.2d 48, 59 (Minn. Ct. App. 2003). Therefore, whether oppressive or unfairly prejudicial conduct has occurred is largely determined through an examination of the evolving expectations of the shareholders as the business relationship progresses. See id.
Furthermore, shareholders in close corporations owe each other a fiduciary duty to deal “openly, honestly, and fairly with other shareholders.” Berreman v. West. Pub. Co., 615 N.W.2d at 362, 371 (Minn. Ct. App. 2000). This duty is analogous to the duties owed by partners in a partnership and includes the duty to disclose material facts. Id.
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See Minn. R. Civ. P. 23.09. In order to have standing to bring a derivative suit, a plaintiff must fairly and adequately represent the interests of the other shareholders 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. Furthermore, the shareholder initiating the suit must state with particularity in the complaint the efforts used to obtain relief from the corporation and the reason why those efforts failed. Id. Court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be required. Id.
When a corporation receives a shareholder complaint, it may form a special litigation committee to determine the legal rights of the corporation and assess the available remedies and whether they are worth pursuing. Blohm, 765 N.W.2d at 153. The decision whether to pursue the action receives business judgment rule protection provided the special litigation committee was independent and made in good faith. Id.
In addition to pursuing claims on behalf of the corporation, a shareholder may also initiate a direct action for harm personally suffered in his or her individual capacity as a shareholder. Id. Whether a shareholder may bring a direct action or is required to bring a derivative suit is determined by the type of injury suffered. Id. If the injury is primarily to the corporation and the shareholder suffers only indirect harm, the suit must be brought derivatively. Id. However, in some limited cases where there are multiple minority shareholders that are treated differently such that one is oppressed but not another, that shareholder may maintain a direct action. Id. at 154.