LLC, Shareholder and Partnership Disputes

If a company has suffered damage because of the wrongdoing of an outside party or a company insider, the right to bring a lawsuit belongs to the company, not an individual member or shareholder of the company. However, what happens if the company refuses to take action to enforce a right on behalf of the company?

Derivative Action 

A member or shareholder can bring a derivative action on behalf of the company to recover damages suffered by the company. Importantly, the member or shareholder generally cannot maintain a personal action against a director or other third party whose action causes harm to the company as those claims are owned by the company. Generally, it is the company, or a member or shareholder in a derivative action under C.R.C.P. 23.1 who must pursue such claims. Members or shareholders of the company cannot assert individual claims based on wrongs to the company where they did not suffer injuries separate and distinct from the injury to the corporation or the other shareholders.

Direct Personal Action by Member or Shareholder

There is an exception -  a direct personal action by a member or shareholder. The member or shareholder may maintain a personal action in their own capacity as a member or shareholder only if the actions of the third party that injure the company result from a violation of a duty owed to them as a member or shareholder and that cause them injury unique to themselves and not suffered by other owners of the company. For example, a preferred shareholder could maintain a personal action against directors who deny them a statutory right of redemption upon adoption of a liquidation plan.

Operating and Shareholder Agreements

The operating or shareholder agreement may also include other rights and obligations and a way to enforce those rights (for instance, capital contributions and buy-out provisions). Colorado law also provides for certain rights of shareholders of corporations and rights of members of LLCs. In the event the owners of a company cannot resolve their disputes, Colorado law allows for judicial dissolution in same circumstances.

Contact Champagne Law Firm for a strategy session to resolve your case.