Brief survey of Oregon shareholder law.
Oregon Shareholder Law Survey
Books and Records
Right to Inspection Books and Records
A shareholder in an Oregon close corporation has the same inspection rights as a shareholder in an ordinary Oregon corporation. See Or. Rev. Stat. Ann. § 60.774 (West 2003). 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. § 60.774(1). The items available for inspection and copying under this section are the corporation’s articles of incorporation, bylaws, resolutions of the board with respect to 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, the corporation’s most recent annual report and certain financial statements. § 60.771(5).
Shareholders who meet additional standing requirements have the right to inspect and copy a wider range of documents than those stated above. § 60.774(2). Shareholders who make a good faith demand for a proper purpose that specifies the records to be inspected may inspect and copy 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 demand. § 60.774(2),(3).
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 cost to the shareholder for labor and materials used in providing the requested documents. §§ 60.774(4), 60.775(3).
Additionally, 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, attorneys’ fees and damages. § 60.781.
Oregon law provides for a number of remedies for shareholders in close corporations 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.” § 60.952(1)(b). The statutory remedies include: requiring, setting aside or altering any action by a party to the proceeding; cancellation or alteration of a provision of the bylaws or articles; removal or appointment of any person as an officer or director; ordering an accounting; appointment of a custodian or provisional director; submission of any matter to dispute resolution; declaration of dividends; an award of damages; purchase of the corporation or dissolution of the corporation if none of the other remedies is adequate to resolve the dispute. § 60.952(2). In determining which remedy is appropriate, the court should consider the reasonable expectations of the aggrieved shareholder at the time the corporation was formed and throughout the relationship between the shareholders. § 60.952(4). Additionally, if a proceeding is instituted by a shareholder under this section, one or more shareholders or the corporation may purchase the shares of the complaining shareholder. § 60.952(6).
Although the statute does not define what constitutes oppressive conduct by the majority, Oregon courts have cited the often quoted definition of “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.” Baker v. Commercial Body Builders, Inc., 507 P.2d 387, 393 (Or. 1973).
Additionally, the courts have held that what constitutes oppression is closely related to the fiduciary duty of good faith and fair dealing that the majority interest owes to the minority. Id. Use of a corporate position for personal gain to the detriment of other shareholders, excessive salaries and bonuses as well as operating the corporation for the sole benefit of a particular shareholder all constitute conduct actionable as oppression. Id. However, a single breach of the fiduciary duty or even a continuing course of conduct do not necessarily amount to oppression unless there has been a disproportionate loss to the minority interest or those in control of the corporation are corrupt such that they cannot be trusted to fairly manage the corporation. Id. at 630.
Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See § 60.261. 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. § 60.261(1). The plaintiff’s complaint must allege with particularity the efforts made to obtain appropriate relief from the corporation or state the reasons why no such efforts were made or why they failed. § 60.261(2). If the corporation then conducts an investigation into the allegations the court may stay the derivative proceedings pending the outcome of the investigation. Id. A derivative proceeding may not be dismissed or settled without court approval and the court may require shareholder notification where dismissal or settlement substantially affects shareholder or corporate interests. § 60.261(3).
Generally, shareholders may only assert a claim for a wrong against the corporation through a derivative suit. Wulf v. Mackey, 899 P.2d 755, 757 (Or. Ct. App. 1995). However, in the close corporation context “minority shareholders may bring direct, rather than derivative, actions if they allege either ‘harm to themselves distinct from the harm to the corporation or a breach of a special duty owed by the defendant to the shareholders.’” Id.