What Rights Do I have as a Shareholder?

Are you aggrieved by the manner in which a corporation of which you are a shareholder conducts the business and affairs of the corporation? You have rights as a shareholder.

There are number of ways shareholders can ensure the protection of their rights and interests. The two most common methods are derivative actions and actions for oppression.

Derivative actions

With leave of the court, a derivative action may be brought by a “complainant,” which includes shareholders and former shareholders; directors or former directors; officers or former officers of the corporation or any of its affiliates; or any other person who in discretion of the court is a proper person to bring the action (s.245 of Ontario Business Corporation Act (OBCA)).

Oppression Remedy

Under section 248 of the OBCA and Section 241 of the Canada Business Corporation Act (CBCA), the shareholder (the complainant) has the right to apply to a court of competent jurisdiction for relief if any act or omission by a corporation or any affiliate or by the directors is oppressive or unfairly prejudicial to or unfairly disregards the interest of any shareholder, creditor, director, or officer, if the business or affairs of the corporation or any affiliate are conducted in a manner that has this effect.

While a broad range of persons may be able to commence an oppression remedy action, the range of protected persons is narrow.

The Difference

The Ontario Court of Appeal decision in Rea v Wildeboer clarifies the nature and purpose of, and difference between the oppression remedy and the derivative action. The decision establishes the following;

To claim oppression, a plaintiff must plead that it suffered personal harm distinct from that suffered by the corporation itself.
The focus of the oppression remedy is on the effects of the impugned conduct on the complainant, not on the corporation.
If the relief sought is for the benefit of the corporation, then the action will most likely have to be brought as a derivative action, and leave will be required.
The causes of action overlap where the corporation is small and closely-held and where the impugned conduct directly affects the complainant in a way that differs from the effects on other shareholders. In such cases, a claim may be brought either as a derivative action or as a claim for oppression.

An important difference between the oppression remedy and the derivative action is that a potential complainant must obtain leave of the court prior to commencing a derivative action. This often expensive and time-consuming procedural hurdle has in certain cases led complainants to seek to frame alleged wrongdoing against a corporation as personal in nature in order to seek relief under the oppression remedy instead.

The Court of Appeal recognized that while the derivative action and the oppression remedy are not mutually exclusive, they are distinct, and shareholders considering bringing a claim must carefully consider which cause of action is appropriate in the circumstances.

Shareholder Rights Generally

Regardless of the form of the action brought, it is important to keep in mind that shareholders, even minority shareholders have statutory rights under the law. There is no minimum percentage of shareholdings that a shareholder must own before it can avail itself of the remedies under corporate legislation. Any shareholder of any amount can commence action in the Superior Court for relief where the shareholder believes the actions of the corporation are oppressive to it, where financial disclosure is refused to the shareholder or where the corporations’ actions are unfairly prejudicial to the shareholder.

The derivative action or oppression remedy has been interpreted by courts and commentators as imposing a general standard of “fair” conduct on each corporation and its management. When this standard has been breached, complainants may apply to court for an order rectifying the oppressive conduct. The court may make any order it thinks fit, including awarding money damages, appointing a receiver, dissolving the corporation, forcing the acquisition of securities and amending charter documents.

We Can Help

If you are a shareholder of a private corporation or small business corporation and feel the directors or other shareholders have not acted fairly towards you, are denying your involvement, are not providing financial disclosure of the corporation, or have engaged in oppressive or prejudicial conduct towards you, you have rights under the governing legislation. Call us. We’re here to help™.

F.A.Q’s:

What is the purpose of the derivative action and oppression remedy?

The derivative action or oppression remedy has been interpreted by courts as imposing a general standard of “fair” conduct on each corporation and its management. When this standard has been breached, complainants may apply to court for an order rectifying the oppressive conduct. The court may make any order it thinks fit, including awarding money damages, appointing a receiver, dissolving the corporation, forcing the acquisition of securities and amending charter documents.

What is a derivative action that is commenced on behalf of a corporation?

A derivative action empowers complainants to commence an action on behalf of the corporation to remedy alleged wrongs done to the corporation itself (although, in certain circumstances, the complainant can request that any damages awarded be paid to current or former shareholders). If the relief sought is for the benefit of the corporation, then the action will most likely have to be brought as a derivative action, and leave will be required.

Who can commence a derivate action on behalf of a corporation?

With leave of the court, a derivative action may be brought by a “complainant,” which includes shareholders and former shareholders; directors or former directors; officers or former officers of the corporation or any of its affiliates; or any other person who in discretion of the court is a proper person to bring the action (s.245 of Ontario Business Corporation Act (OBCA)).

Can I seek a derivative action without permission from the courts?

In order to commence a derivative action, one must obtain leave of the court prior to commencing said action. That is, the court must allow for the action to proceed. This often expensive and time-consuming procedural hurdle has in certain cases led complainants to seek to frame alleged wrongdoing against a corporation as personal in nature in order to seek relief under the oppression remedy instead.

What is an oppression remedy that a complainant can commence against a corporation on behalf of himself?

Under section 248 of the OBCA and Section 241 of the Canada Business Corporation Act (CBCA), the shareholder (the complainant) has the right to apply to a court of competent jurisdiction for relief if any act or omission by a corporation or any affiliate or by the directors is oppressive or unfairly prejudicial to or unfairly disregards the interest of any shareholder, creditor, director, or officer, if the business or affairs of the corporation or any affiliate are conducted in a manner that has this effect.

To claim oppression, a plaintiff must plead it suffered personal harm distinct from that suffered by the corporation itself. The focus of the oppression remedy is on the effects of the impugned conduct on the complainant, not the corporation.

If the wrongdoing affects the corporation while simultaneously affecting a particular shareholder more grievously than other shareholders, which action is more appropriate—the derivative action or an oppression remedy?

The causes of action can overlap where the corporation is small and closely-held and where the impugned conduct directly affects the complainant in a way that differs from the effects on other shareholders. In such cases, a claim may be brought either as a derivative action or as a claim for oppression.

Does a shareholder need to have a minimum percentage of shareholdings in order to avail of either the derivative action or the oppression remedy?

There is no minimum percentage of shareholdings that a shareholder must own before it can avail itself of the remedies under corporate legislation. Any shareholder of any amount can commence action in the Superior Court for relief where the shareholder believes the actions of the corporation are oppressive to it, where financial disclosure is refused to the shareholder or where the corporations’ actions are unfairly prejudicial to the shareholder.

-Ghazal Hamedani, Associate Lawyer

Ghazal’s practice is focused on corporate-commercial law, including business formations, corporate reorganizations, shareholder agreements, commercial contracts, the purchase and sale of businesses, as well as secured and unsecured lending transactions. After graduating from University of Toronto with distinction, Ghazal completed her law studies with honours at Cardiff Law in 2017. Ghazal is a lawyer licenced to practice law by the Law Society of Ontario. She is also a member of the Canadian Bar Association and Canadian Corporate Counsel Association Ontario.

The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.