Shareholders of Virginia corporations have the right to bring derivative actions on behalf of the corporation against officers or directors who are harming the corporation (and thus the value of its shares). Virginia shareholders can also ask a court to step in regarding shareholder meetings and review of corporate actions and officers. Petitions can be filed with the State Corporation Commission in certain circumstances.
|Court-Ordered Shareholder Meetings|
|Court Review of Corporate Actions and Officers|
A "derivative action" is an action in which "a shareholder asserts, on behalf of the corporation, a claim that belongs to the corporation rather than the shareholder." (Simmons v. Miller, 544 S.E.2d 666 (Va. 2001)). Derivative actions are filed against a corporate officer, board member, or other executive whose actions have harmed the corporation.
Before filing a derivate action, a shareholder must make a written demand to the corporation to take a certain action. The shareholder must then wait 90 days unless the corporation has already rejected the request, or irreparable injury would happen to the corporation by waiting 90 days (Va. Code § 13.1-672.1(B)).
One possible remedy is the removal of a director from office by the court, if the director engaged in fraudulent conduct with respect to the corporation or its shareholders, grossly abused the position of director, or intentionally inflicted harm on the corporation (Va. Code § 13.1-681.1).
The court may also award monetary damages against an officer or director, per occurrence, which will not exceed the lesser of :
- The monetary amount, including the elimination of liability, specified in the articles of incorporation or, if approved by the shareholders, in the bylaws as a limitation on or elimination of the liability of the officer or director; or
- The greater of (i) $100,000 or (ii) the amount of cash compensation received by the officer or director from the corporation during the 12 months immediately preceding the act or omission for which liability was imposed.
These limitations don't apply if the officer or director engaged in willful misconduct or a knowing violation of the criminal law or of any federal or state securities law, including, without limitation, any claim of unlawful insider trading or manipulation of the market for any security (Va. Code § 13.1-692-1).
Court-Ordered Shareholder Meetings
Unless directors are elected by written consent of all shareholders entitled to vote, a Virginia corporation must hold an annual meeting of shareholders (Va. Code § 13.1-654).
If the corporation is not public and has 35 or less shareholders, then the holders of at least 20% of the votes can demand a special meeting in writing for a specific purpose (Va. Code § 13.1-655). Note that the articles of incorporation can change this percentage or eliminate this right altogether.
Shareholders can petition the circuit court and ask the court to order an annual or special meeting be held if:
- If a corporation failed to hold an annual meeting (or no action was taken by written consent) within 15 months after the last meeting, or
- A notice for the special meeting wasn't provided within 30 days of the secretary of the corporation receiving the shareholder's request, or
- The special meeting was noticed but not held.
Court Review of Corporate Actions and Officers
A shareholder can bring a lawsuit against the corporation to challenge the corporation's power to act and to stop that act from taking effect (Va. Code § 13.1-629).
Actions taken pursuant to a shareholder meeting are valid unless a court determines otherwise (Va. Code § 13.1-665(F)).
A corporation can appoint inspectors to determine the voting results at shareholders' meetings. Determinations of law by the inspectors are subject to court review (Va. Code § 13.1-664.1(F)).
A shareholder can petition the circuit court to determine the result or validity of corporate offices or votes, including:
- The result or validity of the election, appointment, removal, or resignation of a director or officer of the corporation;
- The right of an individual to hold the office of director or officer of the corporation;
- The result or validity of any vote by the shareholders of the corporation;
- The right of a director to membership on a committee of the board of directors; and
- The right of a person to nominate, or an individual to be nominated as, a candidate for election or appointment as a director of the corporation, and any right under a bylaw adopted pursuant to subsection C of § 13.1-624 or any comparable right under any provision of the articles of incorporation, a contract, or applicable law.
A shareholder also has the right to ask the circuit court to determine the result or validity of any vote by the shareholders of the corporation (Va. Code § 13.1-654).
Errors in Articles
A shareholder can file a petition with the State Corporation Commission (SCC) regarding articles filed in which the shareholder asserts that the certification of corporate action contained in the articles contains a misstatement of a material fact as to compliance with statutory requirements (Va. Code § 13.1-614).
Review of Validity of Corporate Actions
Upon a petition by a shareholder, the SCC can:
- Determine the validity and effectiveness of any corporate action or defective corporate action;
- Determine the validity and effectiveness of any ratification of defective corporate actions;
- Determine the validity of any putative shares; and
- Modify or waive any of the procedures specified in the Virginia Code to ratify a defective corporate action.
Want to talk to a Virginia attorney about a shareholder lawsuit?
Whether you're a shareholder of a Virginia corporation wanting to exercise your rights, or a Virginia corporation worried about compliance, D'Lima Law can help.