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| Rhode Island Shareholder Law Resources |
| Resources >> Shareholder Law >>Rhode Island |
I. Shareholder Inspection Rights
Shareholders in Rhode Island close corporations have the same inspection rights as those in ordinary Rhode Island
corporations. See R.I. Gen. Laws § 7-1.2-1502 (2008). Shareholders have the right, upon written demand stating a proper
purpose, to inspect and copy the corporation’s books and records of account, minutes and record of shareholders. § 7-1.2-
1502(b).
If the corporation or its officers or directors fail to comply with a properly demanded inspection, the court may order inspection
and that person or the corporation is liable to the demanding shareholder for a penalty in the amount of ten percent of the
value of the shareholder’s interest in the corporation in addition to any other available remedy. § 7-1.2-1502(c). 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 his
or her demand.” Id.
The shareholders’ inspection right is rooted in the fact that they are the beneficial owners of the corporation and, as such,
have an interest in ensuring the corporation is properly managed which requires access to corporate information. Sarni v.
Meloccaro, 324 A.2d 648, 639 (R.I. 1974).
II. Shareholder Oppression
Rhode Island law provides for court ordered liquidation of a close corporation if the “acts of the directors or those in control of
the corporation are illegal, oppressive, or fraudulent.” § 7-2.1-1314(a)(ii). The statute does not define what conduct by the
majority interest constitutes oppression, however, the courts have analyzed it in terms of the heightened duty of good faith
owed by the majority interest to the minority as well as by reference to the reasonable expectations of the minority in joining
the corporation. Hendrick v. Hendrick, 755 A.2d 784, 791 (R.I. 2000). The court uses the reasonable expectations approach
because it accounts for the differing interests that shareholders in close corporations often have that are not present when
investing in an ordinary corporation. Id. An examination of shareholder expectations requires an analysis of the
“understanding of the parties concerning their role in corporate affairs.” Id. Based on those expectations, examples of
oppressive conduct include refusing to declare dividends, siphoning off corporate profits through excessive salaries or
bonuses, withholding of corporate information or termination of employment with the corporation. Id. at 791-92.
As alluded to above, majority shareholders in closely held corporations may owe fiduciary duties to the minority interest
because of their power over corporate management and the limited market for the minority interest’s shares. See id. at 784.
Whether or not fiduciary duties are owed involves an examination of whether the shareholders intended by their “active
participation . . . in management decisions, and their close and intimate working relations, that [they], by acting as if they were
partners, thus assumed a fiduciary duty toward one another.” A. Teixeira, Co. v. Teixeira, 699 A.2d 1383, 1383 (R.I. 1997).
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 7-1.2-711. 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. § 7-2.1-711(b).
Additionally, the complaining shareholder must make a written demand on the corporation seeking appropriate relief before
filing suit. § 7-2.1-711(c). 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. § 7-2.1-711(d).
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 or a committee thereof that maintenance of the suit is not in the best interests of the
corporation. § 7-2.1-711(e). However, court approval is required before a suit may be discontinued or settled and
notification of affected shareholders may be required. § 7-2.1-711(f). Additionally, reasonable expenses and attorneys’ fees
may be awarded to a plaintiff whose suit 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. § 7-2.1-711(g).
Shareholders in Rhode Island close corporations have the same inspection rights as those in ordinary Rhode Island
corporations. See R.I. Gen. Laws § 7-1.2-1502 (2008). Shareholders have the right, upon written demand stating a proper
purpose, to inspect and copy the corporation’s books and records of account, minutes and record of shareholders. § 7-1.2-
1502(b).
If the corporation or its officers or directors fail to comply with a properly demanded inspection, the court may order inspection
and that person or the corporation is liable to the demanding shareholder for a penalty in the amount of ten percent of the
value of the shareholder’s interest in the corporation in addition to any other available remedy. § 7-1.2-1502(c). 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 his
or her demand.” Id.
The shareholders’ inspection right is rooted in the fact that they are the beneficial owners of the corporation and, as such,
have an interest in ensuring the corporation is properly managed which requires access to corporate information. Sarni v.
Meloccaro, 324 A.2d 648, 639 (R.I. 1974).
II. Shareholder Oppression
Rhode Island law provides for court ordered liquidation of a close corporation if the “acts of the directors or those in control of
the corporation are illegal, oppressive, or fraudulent.” § 7-2.1-1314(a)(ii). The statute does not define what conduct by the
majority interest constitutes oppression, however, the courts have analyzed it in terms of the heightened duty of good faith
owed by the majority interest to the minority as well as by reference to the reasonable expectations of the minority in joining
the corporation. Hendrick v. Hendrick, 755 A.2d 784, 791 (R.I. 2000). The court uses the reasonable expectations approach
because it accounts for the differing interests that shareholders in close corporations often have that are not present when
investing in an ordinary corporation. Id. An examination of shareholder expectations requires an analysis of the
“understanding of the parties concerning their role in corporate affairs.” Id. Based on those expectations, examples of
oppressive conduct include refusing to declare dividends, siphoning off corporate profits through excessive salaries or
bonuses, withholding of corporate information or termination of employment with the corporation. Id. at 791-92.
As alluded to above, majority shareholders in closely held corporations may owe fiduciary duties to the minority interest
because of their power over corporate management and the limited market for the minority interest’s shares. See id. at 784.
Whether or not fiduciary duties are owed involves an examination of whether the shareholders intended by their “active
participation . . . in management decisions, and their close and intimate working relations, that [they], by acting as if they were
partners, thus assumed a fiduciary duty toward one another.” A. Teixeira, Co. v. Teixeira, 699 A.2d 1383, 1383 (R.I. 1997).
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 7-1.2-711. 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. § 7-2.1-711(b).
Additionally, the complaining shareholder must make a written demand on the corporation seeking appropriate relief before
filing suit. § 7-2.1-711(c). 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. § 7-2.1-711(d).
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 or a committee thereof that maintenance of the suit is not in the best interests of the
corporation. § 7-2.1-711(e). However, court approval is required before a suit may be discontinued or settled and
notification of affected shareholders may be required. § 7-2.1-711(f). Additionally, reasonable expenses and attorneys’ fees
may be awarded to a plaintiff whose suit 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. § 7-2.1-711(g).
| Rhode Island Shareholder Law Resources |
I. Shareholder Inspection Rights
Shareholders in Rhode Island close corporations have the same inspection rights as those in ordinary Rhode Island
corporations. See R.I. Gen. Laws § 7-1.2-1502 (2008). Shareholders have the right, upon written demand stating a proper
purpose, to inspect and copy the corporation’s books and records of account, minutes and record of shareholders. § 7-1.2-
1502(b).
If the corporation or its officers or directors fail to comply with a properly demanded inspection, the court may order inspection
and that person or the corporation is liable to the demanding shareholder for a penalty in the amount of ten percent of the
value of the shareholder’s interest in the corporation in addition to any other available remedy. § 7-1.2-1502(c). 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 his
or her demand.” Id.
The shareholders’ inspection right is rooted in the fact that they are the beneficial owners of the corporation and, as such,
have an interest in ensuring the corporation is properly managed which requires access to corporate information. Sarni v.
Meloccaro, 324 A.2d 648, 639 (R.I. 1974).
II. Shareholder Oppression
Rhode Island law provides for court ordered liquidation of a close corporation if the “acts of the directors or those in control of
the corporation are illegal, oppressive, or fraudulent.” § 7-2.1-1314(a)(ii). The statute does not define what conduct by the
majority interest constitutes oppression, however, the courts have analyzed it in terms of the heightened duty of good faith
owed by the majority interest to the minority as well as by reference to the reasonable expectations of the minority in joining
the corporation. Hendrick v. Hendrick, 755 A.2d 784, 791 (R.I. 2000). The court uses the reasonable expectations approach
because it accounts for the differing interests that shareholders in close corporations often have that are not present when
investing in an ordinary corporation. Id. An examination of shareholder expectations requires an analysis of the
“understanding of the parties concerning their role in corporate affairs.” Id. Based on those expectations, examples of
oppressive conduct include refusing to declare dividends, siphoning off corporate profits through excessive salaries or
bonuses, withholding of corporate information or termination of employment with the corporation. Id. at 791-92.
As alluded to above, majority shareholders in closely held corporations may owe fiduciary duties to the minority interest
because of their power over corporate management and the limited market for the minority interest’s shares. See id. at 784.
Whether or not fiduciary duties are owed involves an examination of whether the shareholders intended by their “active
participation . . . in management decisions, and their close and intimate working relations, that [they], by acting as if they were
partners, thus assumed a fiduciary duty toward one another.” A. Teixeira, Co. v. Teixeira, 699 A.2d 1383, 1383 (R.I. 1997).
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 7-1.2-711. 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. § 7-2.1-711(b).
Additionally, the complaining shareholder must make a written demand on the corporation seeking appropriate relief before
filing suit. § 7-2.1-711(c). 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. § 7-2.1-711(d).
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 or a committee thereof that maintenance of the suit is not in the best interests of the
corporation. § 7-2.1-711(e). However, court approval is required before a suit may be discontinued or settled and
notification of affected shareholders may be required. § 7-2.1-711(f). Additionally, reasonable expenses and attorneys’ fees
may be awarded to a plaintiff whose suit 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. § 7-2.1-711(g).
Shareholders in Rhode Island close corporations have the same inspection rights as those in ordinary Rhode Island
corporations. See R.I. Gen. Laws § 7-1.2-1502 (2008). Shareholders have the right, upon written demand stating a proper
purpose, to inspect and copy the corporation’s books and records of account, minutes and record of shareholders. § 7-1.2-
1502(b).
If the corporation or its officers or directors fail to comply with a properly demanded inspection, the court may order inspection
and that person or the corporation is liable to the demanding shareholder for a penalty in the amount of ten percent of the
value of the shareholder’s interest in the corporation in addition to any other available remedy. § 7-1.2-1502(c). 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 his
or her demand.” Id.
The shareholders’ inspection right is rooted in the fact that they are the beneficial owners of the corporation and, as such,
have an interest in ensuring the corporation is properly managed which requires access to corporate information. Sarni v.
Meloccaro, 324 A.2d 648, 639 (R.I. 1974).
II. Shareholder Oppression
Rhode Island law provides for court ordered liquidation of a close corporation if the “acts of the directors or those in control of
the corporation are illegal, oppressive, or fraudulent.” § 7-2.1-1314(a)(ii). The statute does not define what conduct by the
majority interest constitutes oppression, however, the courts have analyzed it in terms of the heightened duty of good faith
owed by the majority interest to the minority as well as by reference to the reasonable expectations of the minority in joining
the corporation. Hendrick v. Hendrick, 755 A.2d 784, 791 (R.I. 2000). The court uses the reasonable expectations approach
because it accounts for the differing interests that shareholders in close corporations often have that are not present when
investing in an ordinary corporation. Id. An examination of shareholder expectations requires an analysis of the
“understanding of the parties concerning their role in corporate affairs.” Id. Based on those expectations, examples of
oppressive conduct include refusing to declare dividends, siphoning off corporate profits through excessive salaries or
bonuses, withholding of corporate information or termination of employment with the corporation. Id. at 791-92.
As alluded to above, majority shareholders in closely held corporations may owe fiduciary duties to the minority interest
because of their power over corporate management and the limited market for the minority interest’s shares. See id. at 784.
Whether or not fiduciary duties are owed involves an examination of whether the shareholders intended by their “active
participation . . . in management decisions, and their close and intimate working relations, that [they], by acting as if they were
partners, thus assumed a fiduciary duty toward one another.” A. Teixeira, Co. v. Teixeira, 699 A.2d 1383, 1383 (R.I. 1997).
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 7-1.2-711. 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. § 7-2.1-711(b).
Additionally, the complaining shareholder must make a written demand on the corporation seeking appropriate relief before
filing suit. § 7-2.1-711(c). 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. § 7-2.1-711(d).
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 or a committee thereof that maintenance of the suit is not in the best interests of the
corporation. § 7-2.1-711(e). However, court approval is required before a suit may be discontinued or settled and
notification of affected shareholders may be required. § 7-2.1-711(f). Additionally, reasonable expenses and attorneys’ fees
may be awarded to a plaintiff whose suit 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. § 7-2.1-711(g).
| Rhode Island Shareholder Law Resources |
I. Shareholder Inspection Rights
Shareholders in Rhode Island close corporations have the same inspection rights as those in ordinary Rhode Island
corporations. See R.I. Gen. Laws § 7-1.2-1502 (2008). Shareholders have the right, upon written demand stating a proper
purpose, to inspect and copy the corporation’s books and records of account, minutes and record of shareholders. § 7-1.2-
1502(b).
If the corporation or its officers or directors fail to comply with a properly demanded inspection, the court may order inspection
and that person or the corporation is liable to the demanding shareholder for a penalty in the amount of ten percent of the
value of the shareholder’s interest in the corporation in addition to any other available remedy. § 7-1.2-1502(c). 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 his
or her demand.” Id.
The shareholders’ inspection right is rooted in the fact that they are the beneficial owners of the corporation and, as such,
have an interest in ensuring the corporation is properly managed which requires access to corporate information. Sarni v.
Meloccaro, 324 A.2d 648, 639 (R.I. 1974).
II. Shareholder Oppression
Rhode Island law provides for court ordered liquidation of a close corporation if the “acts of the directors or those in control of
the corporation are illegal, oppressive, or fraudulent.” § 7-2.1-1314(a)(ii). The statute does not define what conduct by the
majority interest constitutes oppression, however, the courts have analyzed it in terms of the heightened duty of good faith
owed by the majority interest to the minority as well as by reference to the reasonable expectations of the minority in joining
the corporation. Hendrick v. Hendrick, 755 A.2d 784, 791 (R.I. 2000). The court uses the reasonable expectations approach
because it accounts for the differing interests that shareholders in close corporations often have that are not present when
investing in an ordinary corporation. Id. An examination of shareholder expectations requires an analysis of the
“understanding of the parties concerning their role in corporate affairs.” Id. Based on those expectations, examples of
oppressive conduct include refusing to declare dividends, siphoning off corporate profits through excessive salaries or
bonuses, withholding of corporate information or termination of employment with the corporation. Id. at 791-92.
As alluded to above, majority shareholders in closely held corporations may owe fiduciary duties to the minority interest
because of their power over corporate management and the limited market for the minority interest’s shares. See id. at 784.
Whether or not fiduciary duties are owed involves an examination of whether the shareholders intended by their “active
participation . . . in management decisions, and their close and intimate working relations, that [they], by acting as if they were
partners, thus assumed a fiduciary duty toward one another.” A. Teixeira, Co. v. Teixeira, 699 A.2d 1383, 1383 (R.I. 1997).
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 7-1.2-711. 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. § 7-2.1-711(b).
Additionally, the complaining shareholder must make a written demand on the corporation seeking appropriate relief before
filing suit. § 7-2.1-711(c). 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. § 7-2.1-711(d).
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 or a committee thereof that maintenance of the suit is not in the best interests of the
corporation. § 7-2.1-711(e). However, court approval is required before a suit may be discontinued or settled and
notification of affected shareholders may be required. § 7-2.1-711(f). Additionally, reasonable expenses and attorneys’ fees
may be awarded to a plaintiff whose suit 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. § 7-2.1-711(g).
Shareholders in Rhode Island close corporations have the same inspection rights as those in ordinary Rhode Island
corporations. See R.I. Gen. Laws § 7-1.2-1502 (2008). Shareholders have the right, upon written demand stating a proper
purpose, to inspect and copy the corporation’s books and records of account, minutes and record of shareholders. § 7-1.2-
1502(b).
If the corporation or its officers or directors fail to comply with a properly demanded inspection, the court may order inspection
and that person or the corporation is liable to the demanding shareholder for a penalty in the amount of ten percent of the
value of the shareholder’s interest in the corporation in addition to any other available remedy. § 7-1.2-1502(c). 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 his
or her demand.” Id.
The shareholders’ inspection right is rooted in the fact that they are the beneficial owners of the corporation and, as such,
have an interest in ensuring the corporation is properly managed which requires access to corporate information. Sarni v.
Meloccaro, 324 A.2d 648, 639 (R.I. 1974).
II. Shareholder Oppression
Rhode Island law provides for court ordered liquidation of a close corporation if the “acts of the directors or those in control of
the corporation are illegal, oppressive, or fraudulent.” § 7-2.1-1314(a)(ii). The statute does not define what conduct by the
majority interest constitutes oppression, however, the courts have analyzed it in terms of the heightened duty of good faith
owed by the majority interest to the minority as well as by reference to the reasonable expectations of the minority in joining
the corporation. Hendrick v. Hendrick, 755 A.2d 784, 791 (R.I. 2000). The court uses the reasonable expectations approach
because it accounts for the differing interests that shareholders in close corporations often have that are not present when
investing in an ordinary corporation. Id. An examination of shareholder expectations requires an analysis of the
“understanding of the parties concerning their role in corporate affairs.” Id. Based on those expectations, examples of
oppressive conduct include refusing to declare dividends, siphoning off corporate profits through excessive salaries or
bonuses, withholding of corporate information or termination of employment with the corporation. Id. at 791-92.
As alluded to above, majority shareholders in closely held corporations may owe fiduciary duties to the minority interest
because of their power over corporate management and the limited market for the minority interest’s shares. See id. at 784.
Whether or not fiduciary duties are owed involves an examination of whether the shareholders intended by their “active
participation . . . in management decisions, and their close and intimate working relations, that [they], by acting as if they were
partners, thus assumed a fiduciary duty toward one another.” A. Teixeira, Co. v. Teixeira, 699 A.2d 1383, 1383 (R.I. 1997).
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 7-1.2-711. 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. § 7-2.1-711(b).
Additionally, the complaining shareholder must make a written demand on the corporation seeking appropriate relief before
filing suit. § 7-2.1-711(c). 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. § 7-2.1-711(d).
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 or a committee thereof that maintenance of the suit is not in the best interests of the
corporation. § 7-2.1-711(e). However, court approval is required before a suit may be discontinued or settled and
notification of affected shareholders may be required. § 7-2.1-711(f). Additionally, reasonable expenses and attorneys’ fees
may be awarded to a plaintiff whose suit 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. § 7-2.1-711(g).