| Fryar Law Firm, P.C. -- 1001 Texas Ave. -- 14th Floor -- Houston, Texas 77002-3194 Tel. 888-481-9995 281-715-6396 Fax 281-715-6397 Skype: fryarlawfirm ©2010 -- Copyright Fryar Law Firm, P.C. -- All Rights Reserved -- Disclaimer/Terms of Use |
| Protecting the Rights of Business Owners |
| Subscribe to Shareholder Oppression Blog |
| Mississippi Shareholder Law Resources |
I. Shareholder Inspection Rights
Shareholders in Mississippi close corporations have the same inspection rights as shareholders in ordinary Mississippi
corporations. See Miss. Code Ann. § 79-4-16.02 (West 2004). 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. § 79-4-16.02(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 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 and the
corporation’s most recent annual report. § 79-4-16.01(e). Shareholders who meet additional standing requirements have the
right to inspect and copy a wider range of documents than those stated above. § 79-4-16.02(b). Shareholders who make a
good faith demand for a proper purpose that specifies the records to be inspected may inspect 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 inspection. § 79-4-16.02(b),(c). 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 fee to the shareholder for labor and materials used in providing the requested documents. §§ 79-4-
16.02(d), 79-4-16.03(d).
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. § 79-4-16.04.
Additionally, a director of a corporation is entitled to inspect and copy the corporation’s books, records and documents for
any purpose reasonably related to his duties as a director. § 79-4-16.05.
II. Shareholder Oppression
Mississippi 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.” § 79-4-
14.30. Although the statute does not specifically define what constitutes oppressive conduct by the majority interest, the
courts have cited the often quoted definition of oppression as “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.” Kisner v. Coffey, 418 So.2d 58, 61 (Miss. 1982) (quoting Baker v. Commercial Body Builders, Inc., 507 P.2d 387 (Or.
1973)).
Mississippi courts have also noted the relationship between oppressive conduct and the fiduciary duties owed by majority
shareholders to the minority interest. Id. In Kisner, the court provides examples of conduct constituting oppression so as to
justify dissolution including abuse of a corporate position, “siphoning off of the profits by excessive salaries or bonus
payments” and operating the corporation for the sole benefit of the majority shareholders. Id. However, single actions and
even a continuous course of conduct in breach of the fiduciary duty may not warrant dissolution unless they are either
“extremely serious” or result in a disproportionate loss to the minority shareholders. Id. While “imminent disaster” is not
required to invoke the dissolution remedy, the conduct complained of must be sufficiently serious because dissolution is
considered a severe remedy that is often oppressive to the majority interest. Id.
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 79-4-7.41. In order to have standing to bring a derivative suit, a plaintiff must adequately and fairly 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. § 79-4-7.41.
A plaintiff with standing must then make a written demand on the corporation requesting that the corporation take appropriate
action. § 79-4-7.42. 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. § 79-4-7.43.
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. § 79-4-7.44. However, court approval is required before a suit may be discontinued
or settled and notification of affected shareholders may be required. § 79-4-7.45. Additionally, reasonable expenses and
attorneys’ fees may be awarded to a plaintiff if the suit conferred a substantial benefit on the corporation or to a defendant
upon a finding that the suit was brought without reasonable cause or for an improper purpose. § 79-4-7.46.
Although in a derivative suit any recovery obtained generally belongs to the corporation because the shareholder is merely
acting as a representative of the corporation, Mississippi courts have recognized that the differences between public and
close corporations justify a different result in some instances. Griffith v. Griffith, 997 So.2d 218, 223 (Miss. Ct. App. 2008). In
situations that will not prejudice creditors, “expose the corporation to multiple actions, [or] prejudice recovery for all other
interested parties” the court may treat a derivative action as a direct action and order an individual recovery. Id.
Shareholders in Mississippi close corporations have the same inspection rights as shareholders in ordinary Mississippi
corporations. See Miss. Code Ann. § 79-4-16.02 (West 2004). 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. § 79-4-16.02(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 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 and the
corporation’s most recent annual report. § 79-4-16.01(e). Shareholders who meet additional standing requirements have the
right to inspect and copy a wider range of documents than those stated above. § 79-4-16.02(b). Shareholders who make a
good faith demand for a proper purpose that specifies the records to be inspected may inspect 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 inspection. § 79-4-16.02(b),(c). 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 fee to the shareholder for labor and materials used in providing the requested documents. §§ 79-4-
16.02(d), 79-4-16.03(d).
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. § 79-4-16.04.
Additionally, a director of a corporation is entitled to inspect and copy the corporation’s books, records and documents for
any purpose reasonably related to his duties as a director. § 79-4-16.05.
II. Shareholder Oppression
Mississippi 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.” § 79-4-
14.30. Although the statute does not specifically define what constitutes oppressive conduct by the majority interest, the
courts have cited the often quoted definition of oppression as “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.” Kisner v. Coffey, 418 So.2d 58, 61 (Miss. 1982) (quoting Baker v. Commercial Body Builders, Inc., 507 P.2d 387 (Or.
1973)).
Mississippi courts have also noted the relationship between oppressive conduct and the fiduciary duties owed by majority
shareholders to the minority interest. Id. In Kisner, the court provides examples of conduct constituting oppression so as to
justify dissolution including abuse of a corporate position, “siphoning off of the profits by excessive salaries or bonus
payments” and operating the corporation for the sole benefit of the majority shareholders. Id. However, single actions and
even a continuous course of conduct in breach of the fiduciary duty may not warrant dissolution unless they are either
“extremely serious” or result in a disproportionate loss to the minority shareholders. Id. While “imminent disaster” is not
required to invoke the dissolution remedy, the conduct complained of must be sufficiently serious because dissolution is
considered a severe remedy that is often oppressive to the majority interest. Id.
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 79-4-7.41. In order to have standing to bring a derivative suit, a plaintiff must adequately and fairly 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. § 79-4-7.41.
A plaintiff with standing must then make a written demand on the corporation requesting that the corporation take appropriate
action. § 79-4-7.42. 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. § 79-4-7.43.
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. § 79-4-7.44. However, court approval is required before a suit may be discontinued
or settled and notification of affected shareholders may be required. § 79-4-7.45. Additionally, reasonable expenses and
attorneys’ fees may be awarded to a plaintiff if the suit conferred a substantial benefit on the corporation or to a defendant
upon a finding that the suit was brought without reasonable cause or for an improper purpose. § 79-4-7.46.
Although in a derivative suit any recovery obtained generally belongs to the corporation because the shareholder is merely
acting as a representative of the corporation, Mississippi courts have recognized that the differences between public and
close corporations justify a different result in some instances. Griffith v. Griffith, 997 So.2d 218, 223 (Miss. Ct. App. 2008). In
situations that will not prejudice creditors, “expose the corporation to multiple actions, [or] prejudice recovery for all other
interested parties” the court may treat a derivative action as a direct action and order an individual recovery. Id.
Mississippi Articles
Shareholder Oppression
Shareholder Oppression
 | |  | |  | |  | |  |