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You are a part owner in a California business, and something has gone wrong. What can you do?
The law allows business partners, shareholders and LLC members to pursue legal action against other partners. These legal claims are called a cause of action.
At Chatow Law, we’ve resolved hundreds of business disputes. Our preference is to find resolutions without litigation. However, there are times when litigation can’t be avoided. In these cases, what are your legal options?
What Is A Cause of Action?
A cause of action is a legal claim or a set of circumstances that gives rise to a right to seek relief in a court of law. In other words, it is a legal basis for bringing a lawsuit.
Cause of action is the legal claim allowing a party to seek judicial relief. This gives the legal right to seek a remedy because of the act or omission, failure to perform duty, or breach of the defendant’s obligation towards the plaintiff.
A cause of action is made up of elements. Each element of a cause of action must be proven to win a lawsuit.
The elements required to constitute a specific cause of action are found in statutes, administrative regulations, and judicial precedents.
A cause of action typically consists of several elements, including (1) a duty owed by one party to another, (2) a breach of that duty by the first party, and (3) harm suffered by the second party as a result of the breach.
What Types Of Lawsuits Can A Shareholder Pursue Against Other Shareholders?
Depending on the circumstances, shareholders in a business partnership have a variety of causes of action they can pursue, including:
Breach of Fiduciary Duty
Majority shareholders owe a fiduciary duty to the company and all shareholders, including minority shareholders, to act in the company’s best interests.
Fraud & Misrepresentation
In the context of a corporation, if a shareholder makes false representations to another shareholder that result in the affected shareholder suffering harm, the affected shareholder may have a cause of action for fraud or misrepresentation
Oppression
Oppression refers to conduct by the majority shareholder that is intended to harm the minority shareholder or unfairly disregards the minority shareholder’s rights.
Mismanagement
If the majority shareholder engages in mismanagement or wasteful spending, this can harm the interests of the minority shareholder.
Unfair Competition
If a shareholder engages in unfair competition, such as using confidential information or trade secrets for personal gain, the affected shareholder may have a cause of action for unfair competition.
Self-dealing
This occurs when the majority shareholder engages in transactions with the company for their personal benefit at the company’s and its shareholders’ expense.
Unfair Prejudice
This refers to actions by the majority shareholder that are prejudicial to the minority shareholder’s rights or interests in the company.
Conversion
If a shareholder takes or uses property belonging to the corporation or to another shareholder, the affected shareholder may have a cause of action for conversion.
Breach of Contract
A contract can be either express or implied. If a shareholder breaches a contract with another shareholder, the affected shareholder may have a cause of action for breach of contract.
These causes of action may provide a basis for the minority shareholder to sue the majority shareholder and seek relief, such as damages or a court order to enforce their rights.
It’s very common for inappropriate shareholder actions to violate various causes of action. For example, a majority shareholder who keeps pertinent information from another shareholder may have breached their fiduciary duty, committed fraud, and misrepresentation.
Contact Chatow Law For A Free Consultation
We are a business partnership dispute law firm serving clients in Los Angeles County, Orange County and San Diego County. Call us at 949-478-8393 for a free consultation if you’re in a business dispute. We can help you assess your legal rights and advise you on your best course of action.
