A corporate shareholder can sue a corporation’s officers or board of directors either through a direct lawsuit or indirectly through a derivative lawsuit.
U.S. law authorizes shareholders to sue corporate directors for wrongful acts that harm the corporation or the value of its shares. These are called shareholder class actions and shareholder derivative suits.
Our law (under section 165 of the Companies Act, 2008) also allows shareholders a derivative action to either compel the company to recover its own losses, or to do so on its behalf.
The new laws allow small shareholders to sue directors for negligence based on things that they have done – or failed to do – without having to prove that the individuals have benefited directly or that they had committed fraud. … Any compensation awarded will be paid to the company directly from directors’ own pockets.
Who can sue a company director?
Yes, other directors can sue a director on behalf of the company. Shareholders can also take legal action to recover losses against an individual director or an entire board of directors for breach of duty, but it must be brought in the company’s name and to recover the company’s loss.
Can the shareholders overrule the board of directors? … Shareholders can take legal action if they feel the directors are acting improperly. Minority shareholders can take legal action if they feel their rights are being unfairly prejudiced.
In a direct lawsuit, the prevailing shareholder will be entitled to any remedies or damages received. In contrast, in a successful derivative lawsuit, the corporation will be the one to receive any damages. Such damages will then be distributed towards the prevailing corporation’s assets.
Directors should ensure the information they provide to shareholders is clear and comprehensible, not misleading and does not hide material particulars. However, in the absence of a special relationship, directors do not owe fiduciary duties to their company’s shareholders.
Who do directors owe a fiduciary duty?
Under the Companies Act, a director owes fiduciary duties to the company in which they hold office, and must not act in a manner which breaches those duties.
Because shareholders do not act on behalf of the company, they are not fiduciaries and do not owe the corporation the same duties as directors and officers. However, the rules are different for controlling shareholders—those who own a majority of the business.
Is it worth suing a limited company?
Limited companies are, of course, legal entities in their own right, so you will need to sue the business, not the directors or any other individuals working in the business. … Suing the correct entity is always important, but even more so in the case of restaurants, where the trading name can change quite frequently.
What is wrongful trading by directors?
Wrongful trading is a section under the Insolvency Act 1986 that involves directors knowingly making transactions to and from the business, knowing that the company is insolvent. If directors are found guilty under the Insolvency Act, they can be made personally liable for debts to creditors.
What are the liabilities of a director?
Liabilities of a Director
- an ultra vires act where the directors have entered into a contract beyond their powers. …
- breach of trust where the directors make a secret profit out of the business.
- for negligence or for not performing his duties honestly and carefully.
- For dishonest act to make personal profits.