Ohio Shareholder Law Survey

Right to Inspection Books and Records

Ohio shareholders have the right to examine and copy the articles of incorporation, regulations, books and records, minutes, records of shareholders and voting trust agreements. Ohio Rev. Code Ann. § 1701.37(C) (West 2010).

To exercise this right of inspection, the shareholder must make a written demand that states the “specific purpose” for the inspection. § 1701.37(C). The shareholder will not be allowed to inspect and copy records if the shareholder does not state the reason he wishes to exercise his privilege. Or the reason is “unreasonable or improper.” § 1701.37, comment 1.

Shareholder Oppression

Ohio does not provide for judicial dissolution for shareholders in cases of fraud or illegality. See § 1701.91.

Ohio case law states that in a close corporation, controlling shareholders have a fiduciary duty to prevent oppression of minority shareholders. Crosby v. Beam, 548 N.E.2d 217 (Oh. 1989); Frank Lerner & Assoc. Inc. v. Vassy, 599 N.E. 2d 734, 738 (Ohio App. 3d 1991). Shareholders in Ohio close corporations owe one another the same fiduciary duties imposed on partners. Estate of Schroer v. Stamco Supply, Inc., 482 N.E.2d 975, 981 (Ohio App.3d 1989). The shareholders must deal with each other in the “utmost good faith.” Id. They must not misuse their power by promoting their personal interests at the expense of corporate interests. Tinter v. Lucik, 876 N.E.2d 1026, 1031 (2007).

A shareholder may only bring a direct action when the shareholder is harmed in a “separate and distinct” way from the corporation. Boedeker v. Rogers, 746 N.E.2d 625, 629 (Oh. App. 8 Dist. 2000).

“Where majority or controlling shareholders in a close corporation breach their heightened fiduciary duty to minority shareholders by utilizing their majority control of the corporation to their own advantage, without providing minority shareholders with an equally opportunity to benefit, such breach, … is actionable. When such harm can be construed to be individual in nature, then a suit by a minority shareholder against the offending majority or controlling shareholders may proceed as a direct action.” Crosby v. Beam, 548 N.E.2d 217, 221 (Oh. 1989).

Derivative Suits

A derivative action is brought by the shareholder on behalf of the corporation to enforce a right belonging to the corporation. Oh. R. Civ. Proc. 23.1; Crosby, 548 N.E.2d at 219.

To have standing to file a derivative suit, the shareholder must be a “legal or equitable owner of shares” in the corporation. Oh. R. Civ. Proc. 23.1. The shareholder must also “fairly and adequately” represent the interests of the shareholders in enforcing the corporation’s rights.

The complaint must be verified and state the efforts made by the shareholder to obtain the desired action from the directors before filing suit.

Once a derivative suit has been commenced, it may not be dismissed or settled without prior court approval. Oh. R. Civ. Proc. 23.1.