Brief survey of Mississippi shareholder law.
Mississippi Shareholder Law Survey
Shareholder Inspection Rights
Shareholders in Mississippi close corporations have the same inspection rights as shareholders in ordinary Mississippi corporations. See Miss. Code Ann. § 79-4-16.02 (West 2004). 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. § 79-4-16.02(a). The items available for inspection and copying under this section are the corporation’s articles of incorporation, bylaws, resolutions of the board creating 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. § 79-4-16.01(e). Shareholders who meet additional standing requirements have the right to inspect and copy a wider range of documents than those stated above. § 79-4-16.02(b). Shareholders who make a good faith demand for a proper purpose that specifies the records to be inspected may inspect 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 inspection. § 79-4-16.02(b),(c).
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 fee to the shareholder for labor and materials used in providing the requested documents. §§ 79-4-16.02(d), 79-4-16.03(d). 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 may award the shareholder expenses and attorneys’ fees. § 79-4-16.04. Additionally, a director of a corporation is entitled to inspect and copy the corporation’s books, records and documents for any purpose reasonably related to his duties as a director. § 79-4-16.05.
Mississippi 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.” § 79-4-14.30. Although the statute does not specifically define what constitutes oppressive conduct by the majority interest, the courts have cited the often quoted definition of oppression as “burdensome, harsh and wrongful conduct, a lack of probity and fair dealing in the affairs of a company to the prejudice of some of its members; or a visual 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.” Kisner v. Coffey, 418 So.2d 58, 61 (Miss. 1982) (quoting Baker v. Commercial Body Builders, Inc., 507 P.2d 387 (Or. 1973)).
Mississippi courts have also noted the relationship between oppressive conduct and the fiduciary duties owed by majority shareholders to the minority interest. Id. In Kisner, the court provides examples of conduct constituting oppression so as to justify dissolution including abuse of a corporate position, “siphoning off of the profits by excessive salaries or bonus payments” and operating the corporation for the sole benefit of the majority shareholders. Id. However, single actions and even a continuous course of conduct in breach of the fiduciary duty may not warrant dissolution unless they are either “extremely serious” or result in a disproportionate loss to the minority shareholders. Id. While “imminent disaster” is not required to invoke the dissolution remedy, the conduct complained of must be sufficiently serious because dissolution is considered a severe remedy that is often oppressive to the majority interest. 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.
Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See § 79-4-7.41. In order to have standing to bring a derivative suit, a plaintiff must 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. § 79-4-7.41.
A plaintiff with standing must then make a written demand on the corporation requesting that the corporation take appropriate action. § 79-4-7.42. 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. § 79-4-7.43. A derivative suit may be dismissed upon a determination in good faith and after reasonable investigation 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. § 79-4-7.44. However, court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be required. § 79-4-7.45. Additionally, reasonable expenses and attorneys’ fees may be awarded to a plaintiff if the suit conferred a substantial benefit on the corporation or to a defendant upon a finding that the suit was brought without reasonable cause or for an improper purpose. § 79-4-7.46.
Although in a derivative suit any recovery obtained generally belongs to the corporation because the shareholder is merely acting as a representative of the corporation, Mississippi courts have recognized that the differences between public and close corporations justify a different result in some instances. Griffith v. Griffith, 997 So.2d 218, 223 (Miss. Ct. App. 2008). In situations that will not prejudice creditors, “expose the corporation to multiple actions, [or] prejudice recovery for all other interested parties” the court may treat a derivative action as a direct action and order an individual recovery. Id.