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| New Mexico Shareholder Law Resources |
| Resources >> Shareholder Law >>New Mexico |
I. Shareholder Inspection Rights
Shareholders in New Mexico close corporations have the same inspection rights as those in ordinary New Mexico corporations.
See N.M. Stat. Ann. § 53-11-50 (West 2009). In order to have standing to exercise those rights, the requesting shareholder
must have been a record shareholder for at least the preceding six months or own at least five percent of the outstanding
shares of the corporation. § 53-11-50(B). A shareholder with standing who makes a written demand stating a proper purpose
may inspect and copy the corporation’s books and records of account and minutes and record of shareholders. Id.
Additionally, the corporation must make its balance sheet available for inspection and copying at the end of each fiscal year. §
53-11-50(D)
Any officer or agent of the corporation that refuses to allow a properly demanded inspection by a shareholder with standing is
liable to the shareholder for a penalty in the amount of ten percent of the value of the shares owned by the requesting
shareholder in addition to any other damages or remedies that may be available. § 53-11-50(B). Additionally, regardless of
whether the requesting shareholder meets the standing requirements, the court may order an inspection in appropriate
circumstances. § 53-11-50(C). However, a corporation’s defenses to a suit under this rule are that within the two years prior to
the demand, the demanding shareholder sold or offered for sale a list of shareholders of any corporation, “aided or abetted”
another in doing so, improperly used information obtained through a shareholder inspection or was not “acting in good faith or
for a proper purpose in making this demand.” § 53-11-50(B).
II. Shareholder Oppression
New Mexico law provides for involuntary dissolution of a close corporation by its shareholders if the actions of the “directors or
those in control of the corporation are illegal, oppressive, or fraudulent.” § 53-16-16(A)(1)(b). Although the statute does not
define what conduct by the majority constitutes oppression, the courts have discussed the issue and cited language describing
oppression as conduct that is “harsh, dishonest or wrongful” and a violation of the reasonable expectations of the minority
shareholder when he or she joined the venture. McCauley v. Tom McCauley & Son, Inc., 724 P.2d 232, 237 (N.M. Ct. App.
1987). However, findings of oppression should not be made lightly and require more than a minority shareholder’s
dissatisfaction with the state of the corporation. Id. Although the court in McCauley does not specifically adopt a precise
definition of oppression, it notes that findings of mismanagement or waste of corporate assets, inadequate keeping of the books
and denial of access to them, irreconcilable differences and frustration of expectations may all constitute oppressive conduct.
Id. at 238.
Furthermore, shareholders in close corporations owe each other a fiduciary duty “similar to that owed by directors, officers, and
shareholders to the corporation itself.” Walta v. Gallegos Law Firm, P.C., 40 P.3d 449, 458 (N.M. Ct. App. 2001). This duty is
one of “loyalty, good faith, inherent fairness, and the obligation not to profit at the expense of the corporation” and also
encompasses the duty to fully disclose material information. Id.
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 53-11-47. 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. § 53-11-47(A)(1).
Additionally, the complaining shareholder must file a verified complaint alleging the efforts made to obtain appropriate relief from
the corporation or why no such efforts were made. § 53-11-47(A)(2),(3). The court may stay the derivative proceedings
pending an investigation into the allegations by the corporation. § 53-11-47(A). Court approval is required before a suit may
be discontinued or settled and notification of affected shareholders may be required. § 53-11-57(C). Furthermore, if after final
judgment the suit is determined to have been brought without reasonable cause, the plaintiff may be required to pay the
defendant’s expenses, including attorneys’ fees, incurred in defending against the suit. § 53-11-47(B).
Shareholders in New Mexico close corporations have the same inspection rights as those in ordinary New Mexico corporations.
See N.M. Stat. Ann. § 53-11-50 (West 2009). In order to have standing to exercise those rights, the requesting shareholder
must have been a record shareholder for at least the preceding six months or own at least five percent of the outstanding
shares of the corporation. § 53-11-50(B). A shareholder with standing who makes a written demand stating a proper purpose
may inspect and copy the corporation’s books and records of account and minutes and record of shareholders. Id.
Additionally, the corporation must make its balance sheet available for inspection and copying at the end of each fiscal year. §
53-11-50(D)
Any officer or agent of the corporation that refuses to allow a properly demanded inspection by a shareholder with standing is
liable to the shareholder for a penalty in the amount of ten percent of the value of the shares owned by the requesting
shareholder in addition to any other damages or remedies that may be available. § 53-11-50(B). Additionally, regardless of
whether the requesting shareholder meets the standing requirements, the court may order an inspection in appropriate
circumstances. § 53-11-50(C). However, a corporation’s defenses to a suit under this rule are that within the two years prior to
the demand, the demanding shareholder sold or offered for sale a list of shareholders of any corporation, “aided or abetted”
another in doing so, improperly used information obtained through a shareholder inspection or was not “acting in good faith or
for a proper purpose in making this demand.” § 53-11-50(B).
II. Shareholder Oppression
New Mexico law provides for involuntary dissolution of a close corporation by its shareholders if the actions of the “directors or
those in control of the corporation are illegal, oppressive, or fraudulent.” § 53-16-16(A)(1)(b). Although the statute does not
define what conduct by the majority constitutes oppression, the courts have discussed the issue and cited language describing
oppression as conduct that is “harsh, dishonest or wrongful” and a violation of the reasonable expectations of the minority
shareholder when he or she joined the venture. McCauley v. Tom McCauley & Son, Inc., 724 P.2d 232, 237 (N.M. Ct. App.
1987). However, findings of oppression should not be made lightly and require more than a minority shareholder’s
dissatisfaction with the state of the corporation. Id. Although the court in McCauley does not specifically adopt a precise
definition of oppression, it notes that findings of mismanagement or waste of corporate assets, inadequate keeping of the books
and denial of access to them, irreconcilable differences and frustration of expectations may all constitute oppressive conduct.
Id. at 238.
Furthermore, shareholders in close corporations owe each other a fiduciary duty “similar to that owed by directors, officers, and
shareholders to the corporation itself.” Walta v. Gallegos Law Firm, P.C., 40 P.3d 449, 458 (N.M. Ct. App. 2001). This duty is
one of “loyalty, good faith, inherent fairness, and the obligation not to profit at the expense of the corporation” and also
encompasses the duty to fully disclose material information. Id.
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 53-11-47. 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. § 53-11-47(A)(1).
Additionally, the complaining shareholder must file a verified complaint alleging the efforts made to obtain appropriate relief from
the corporation or why no such efforts were made. § 53-11-47(A)(2),(3). The court may stay the derivative proceedings
pending an investigation into the allegations by the corporation. § 53-11-47(A). Court approval is required before a suit may
be discontinued or settled and notification of affected shareholders may be required. § 53-11-57(C). Furthermore, if after final
judgment the suit is determined to have been brought without reasonable cause, the plaintiff may be required to pay the
defendant’s expenses, including attorneys’ fees, incurred in defending against the suit. § 53-11-47(B).
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