New Mexico Shareholder Law Survey
Shareholder Inspection Rights
Shareholders in New Mexico close corporations have the same inspection rights as those in ordinary New Mexico corporations. See N.M. Stat. Ann. § 53-11-50 (West 2009). In order to have standing to exercise those rights, the requesting shareholder must have been a record shareholder for at least the preceding six months or own at least five percent of the outstanding shares of the corporation. § 53-11-50(B). A shareholder with standing who makes a written demand stating a proper purpose may inspect and copy the corporation’s books and records of account and minutes and record of shareholders. Id. Additionally, the corporation must make its balance sheet available for inspection and copying at the end of each fiscal year. § 53-11-50(D)
Any officer or agent of the corporation that refuses to allow a properly demanded inspection by a shareholder with standing is liable to the shareholder for a penalty in the amount of ten percent of the value of the shares owned by the requesting shareholder in addition to any other damages or remedies that may be available. § 53-11-50(B). Additionally, regardless of whether the requesting shareholder meets the standing requirements, the court may order an inspection in appropriate circumstances. § 53-11-50(C). However, a corporation’s defenses to a suit under this rule are that within the two years prior to the demand, the demanding shareholder sold or offered for sale a list of shareholders of any corporation, “aided or abetted” another in doing so, improperly used information obtained through a shareholder inspection or was not “acting in good faith or for a proper purpose in making this demand.” § 53-11-50(B).
New Mexico law provides for involuntary dissolution of a close corporation by its shareholders if the actions of the “directors or those in control of the corporation are illegal, oppressive, or fraudulent.” § 53-16-16(A)(1)(b). Although the statute does not define what conduct by the majority constitutes oppression, the courts have discussed the issue and cited language describing oppression as conduct that is “harsh, dishonest or wrongful” and a violation of the reasonable expectations of the minority shareholder when he or she joined the venture. McCauley v. Tom McCauley & Son, Inc., 724 P.2d 232, 237 (N.M. Ct. App. 1987). However, findings of oppression should not be made lightly and require more than a minority shareholder’s dissatisfaction with the state of the corporation. Id. Although the court in McCauley does not specifically adopt a precise definition of oppression, it notes that findings of mismanagement or waste of corporate assets, inadequate keeping of the books and denial of access to them, irreconcilable differences and frustration of expectations may all constitute oppressive conduct. Id. at 238.
Furthermore, shareholders in close corporations owe each other a fiduciary duty “similar to that owed by directors, officers, and shareholders to the corporation itself.” Walta v. Gallegos Law Firm, P.C., 40 P.3d 449, 458 (N.M. Ct. App. 2001). This duty is one of “loyalty, good faith, inherent fairness, and the obligation not to profit at the expense of the corporation” and also encompasses the duty to fully disclose material information. Id.
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See § 53-11-47. In order to have standing to bring a derivative suit, a plaintiff must 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. § 53-11-47(A)(1). Additionally, the complaining shareholder must file a verified complaint alleging the efforts made to obtain appropriate relief from the corporation or why no such efforts were made. § 53-11-47(A)(2),(3). The court may stay the derivative proceedings pending an investigation into the allegations by the corporation. § 53-11-47(A). Court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be required. § 53-11-57(C). Furthermore, if after final judgment the suit is determined to have been brought without reasonable cause, the plaintiff may be required to pay the defendant’s expenses, including attorneys’ fees, incurred in defending against the suit. § 53-11-47(B).