Wisconsin Shareholder Law Survey
Shareholder Inspection Rights
Shareholders in Wisconsin close corporations have the same inspection rights as those in ordinary Wisconsin corporations. See Wis. Stat. Ann. § 180.1602 (West 2002). Any shareholder may inspect and copy a corporation’s bylaws during regular business hours at the corporation’s principal place of business provided he or she gives the corporation notice at least five business days in advance. § 180.1602(1m). Additionally, shareholders who have held their shares for at least six months or who own at least five percent of the outstanding shares have additional inspection rights. § 180.1602(2)(b)(1). Shareholders who make a good faith demand for a proper purpose that describes with particularity the requested records may inspect and copy minutes or records the corporation is required to keep by law, accounting records of the corporation and the record of shareholders provided they are directly connected with the stated purpose of the inspection. § 180.1602(2)(a),(b). A proper purpose is one that is reasonably related to the shareholder’s interest as a shareholder; however, not just any purpose will suffice and there must be an inquiry into the “bona fides” of the stated purpose so as to prevent an absolute inspection right resulting from a lax interpretation of the statute. Advance Concrete Form, Inc. v. Accuform, Inc., 462 N.W.2d 271, 276 (Wis. Ct. App. 1990).
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. §§ 180.1602(3), 180.1603(2). 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. § 180.1604(2).
Wisconsin law provides for involuntary judicial 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.” § 180.1430(2)(b). Although the statute does not define what conduct by the majority constitutes oppression, the courts have adopted the often quoted definition of “burdensome, harsh and wrongful conduct; a lack of probity and fair dealing in the affairs of the 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.” Jorgensen v. Water Works, Inc., 582 N.W.2d 98, 107 (Wis. Ct. App. 1998). This definition should be applied in a “broad and flexible” manner and is “closely related to breach of the fiduciary duty owed to minority stockholders.” Id. However, a finding of oppression “requires that the complaining shareholder prove that those in control of the corporation willfully and wrongfully inflicted a direct injury upon him that benefited the stockholders who were not injured.” Reget v. Paige, 626 N.W.2d 302, 313 (Wis. Ct. App. 2001).
Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See § 180.0741. In order to have standing to bring a derivative suit, a plaintiff must fairly and adequately 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. § 180.0471. Additionally, the complaining shareholder must make a written demand on the corporation seeking appropriate relief before filing suit. § 180.0742. 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. § 180.0743.
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. § 180.0744. However, court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be required.§ 180.0745. Additionally, reasonable expenses and attorneys’ fees may be awarded to a plaintiff whose suit is determined to have conferred a substantial benefit on the corporation or a defendant upon a finding that the suit was brought without reasonable cause or for an improper purpose. § 180.0746.
Wisconsin subscribes to the general rule that a cause of action that belongs to the corporation cannot be maintained as a direct action by an individual shareholder. Notz v. Everett Smith Group, Ltd., 764 N.W.2d 904, 910 (Wis. 2009). This is true even where the injury to the corporation also impacts the shareholders provided the primary injury is to the corporation. Id. However, in some circumstances where the injury is primarily to the shareholder rather than the corporation, a shareholder may maintain a direct action and receive an individual recovery. Jorgensen, 582 N.W.2d at 103-04.