Vermont Shareholder Law Survey

Shareholder Inspection Rights

Shareholders in Vermont close corporations have the same inspection rights as those in ordinary Vermont corporations. See Vt. Stat. Ann. tit. 11a, § 16.02 (2009). 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. § 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 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. § 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. § 16.02(b). Shareholders who make a good faith demand for a proper purpose that specifies the records to be inspected may inspect the accounting records of the corporation and the record of shareholders provided they are directly connected with the stated purpose of the inspection. Id. 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. §§ 16.02(d), 16.03(c). A proper purpose is one that is reasonably related to the shareholder’s interest as a shareholder and the person seeking inspection bears the initial burden of establishing a proper purpose. Towle v. Robinson Springs Corp., 719 A.2d 880, 882 (Vt. 1998). 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. § 16.04(c).

Shareholder Oppression

Vermont 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.” § 14.30(2)(B). The statute does not specifically define what conduct by the majority constitutes oppression and there does not appear to be significant judicial commentary on the subject. However, in light of their special relationship, shareholders in close corporations owe each other fiduciary duties of good faith and loyalty. P.F. Jurgs & Co. v. O’Brien, 629 A.2d 325, 331 (Vt. 1993).

Shareholder Derivative Suits

Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See § 7.40. 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. Id. The plaintiff initiating suit must allege with particularity the efforts made to receive appropriate relief from the corporation and state why those efforts failed or why none were made. Id. Additionally, if the corporation initiates an investigation into the allegations, the derivative proceedings may be stayed pending the outcome of the investigation. Id. Court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be required.

Vermont subscribes to the general rule that shareholders cannot sue individually for harm to the corporation; these actions must be brought through derivative suits. Bovee v. Lyndonville Sav. Bank & Trust Co., 811 A.2d 143, 145 (Vt. 2002). In order to have standing to bring an individual action, the “shareholder must allege an injury separate and distinct from other shareholders, or a wrong involving a contractual right of the shareholder that exists independently of any right of the corporation.” Id.