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| South Carolina Shareholder Law Resources |
| Resources >> Shareholder Law >>South Carolina |
I. Shareholder Inspection Rights
Shareholders in South Carolina close corporations have the same inspection rights as those in ordinary South Carolina
corporations. See S.C. Code Ann. § 33-16-102 (2008). 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. § 33-16-102(a). The items available for inspection and copying under this section are the
corporation’s articles of incorporation, bylaws, resolutions of the board that create 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, the corporation’s
most recent annual report and the corporation’s tax returns for the previous ten years. § 33-16-101(e).
Shareholders who meet additional standing requirements have the right to inspect and copy a wider range of documents than
those stated above. § 33-16-102(b). Shareholders who make a good faith demand for a proper purpose that specifies the
records to be inspected may inspect and copy 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 demand. § 33-16-102(b),(c).
Despite these requirements, the court may order inspection and copying of corporate documents. § 33-16-102(e)(2).
Furthermore, the corporation may charge a reasonable fee to the shareholder to cover the cost of labor and materials used in
complying with the inspection demand. § 33-16-103(c). Furthermore, 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 award the shareholder expenses and attorneys’ fees incurred in enforcing
the inspection right. § 33-16-104(c).
II. Shareholder Oppression
South Carolina 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, fraudulent, oppressive or unfairly
prejudicial to the corporation or to any shareholder.” § 33-16-300(2)(ii).
Although the statute does not define what conduct by the majority interest is oppressive or prejudicial, the courts have held that
these are “elastic terms whose meaning varies with the circumstances presented in a particular case.” Kiriakides v. Atlas Food
Sys. & Servs., Inc., 541 N.E.2d 257, 263-64 (S.C. 2001). Despite the absence of a specific definition, South Carolina rejects the
widely used test based on frustration of the reasonable expectations of the minority shareholders. Id. at 264. Because the
dissolution statute is couched in terms of the conduct of the majority rather than the rights and interests of the minority, a
definition of oppression based on shareholder expectations requires a subjective inquiry into the intentions of the shareholders
and an examination of the business practices of the corporation that are contrary to the legislative intent in enacting the statute.
Id. Therefore, courts are given discretion to make a determination of whether oppression has occurred on a case by case basis
through reference to“various factors which may be indicative of oppressive behavior.” Id. at 266. Conduct that may indicate
oppression includes siphoning off of corporate assets through high salaries, refusal to declare dividends and exclusion of the
minority shareholder from corporate management. Id. at 267.
Furthermore, majority shareholders in close corporations owe fiduciary duties to the minority interest. See Clearwater Trust v.
Bunting, 626 N.E.2d 334, 347 (S.C. 2006).
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 33-7-400. 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. S.C. R. Civ. P. 23(b)(1). The shareholder’s complaint must allege the efforts used to
obtain appropriate relief from the corporation or either state why those efforts failed or why none were made. Id. Additionally,
court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be
required. Id.
Shareholders that seek to pursue an action for loss to the corporation must do so through a derivative suit. Brown v. Steward,
557 N.E.2d 676, 684 (S.C. Ct. App. 2001). However, if a shareholder suffers an injury that is “separate and distinct from that of
the corporation,” he or she may bring an individual action. Id. Additionally, an individual action is also allowed if the suit is
based on the breach of a fiduciary duty owed to the shareholder where recovery to the corporation would not fully compensate
for the injury. Id. at 685.
Shareholders in South Carolina close corporations have the same inspection rights as those in ordinary South Carolina
corporations. See S.C. Code Ann. § 33-16-102 (2008). 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. § 33-16-102(a). The items available for inspection and copying under this section are the
corporation’s articles of incorporation, bylaws, resolutions of the board that create 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, the corporation’s
most recent annual report and the corporation’s tax returns for the previous ten years. § 33-16-101(e).
Shareholders who meet additional standing requirements have the right to inspect and copy a wider range of documents than
those stated above. § 33-16-102(b). Shareholders who make a good faith demand for a proper purpose that specifies the
records to be inspected may inspect and copy 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 demand. § 33-16-102(b),(c).
Despite these requirements, the court may order inspection and copying of corporate documents. § 33-16-102(e)(2).
Furthermore, the corporation may charge a reasonable fee to the shareholder to cover the cost of labor and materials used in
complying with the inspection demand. § 33-16-103(c). Furthermore, 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 award the shareholder expenses and attorneys’ fees incurred in enforcing
the inspection right. § 33-16-104(c).
II. Shareholder Oppression
South Carolina 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, fraudulent, oppressive or unfairly
prejudicial to the corporation or to any shareholder.” § 33-16-300(2)(ii).
Although the statute does not define what conduct by the majority interest is oppressive or prejudicial, the courts have held that
these are “elastic terms whose meaning varies with the circumstances presented in a particular case.” Kiriakides v. Atlas Food
Sys. & Servs., Inc., 541 N.E.2d 257, 263-64 (S.C. 2001). Despite the absence of a specific definition, South Carolina rejects the
widely used test based on frustration of the reasonable expectations of the minority shareholders. Id. at 264. Because the
dissolution statute is couched in terms of the conduct of the majority rather than the rights and interests of the minority, a
definition of oppression based on shareholder expectations requires a subjective inquiry into the intentions of the shareholders
and an examination of the business practices of the corporation that are contrary to the legislative intent in enacting the statute.
Id. Therefore, courts are given discretion to make a determination of whether oppression has occurred on a case by case basis
through reference to“various factors which may be indicative of oppressive behavior.” Id. at 266. Conduct that may indicate
oppression includes siphoning off of corporate assets through high salaries, refusal to declare dividends and exclusion of the
minority shareholder from corporate management. Id. at 267.
Furthermore, majority shareholders in close corporations owe fiduciary duties to the minority interest. See Clearwater Trust v.
Bunting, 626 N.E.2d 334, 347 (S.C. 2006).
III. Shareholder Derivative Suits
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation.
See § 33-7-400. 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. S.C. R. Civ. P. 23(b)(1). The shareholder’s complaint must allege the efforts used to
obtain appropriate relief from the corporation or either state why those efforts failed or why none were made. Id. Additionally,
court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be
required. Id.
Shareholders that seek to pursue an action for loss to the corporation must do so through a derivative suit. Brown v. Steward,
557 N.E.2d 676, 684 (S.C. Ct. App. 2001). However, if a shareholder suffers an injury that is “separate and distinct from that of
the corporation,” he or she may bring an individual action. Id. Additionally, an individual action is also allowed if the suit is
based on the breach of a fiduciary duty owed to the shareholder where recovery to the corporation would not fully compensate
for the injury. Id. at 685.
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