Two very different settings
In closely held companies, shareholder litigation usually grows out of a relationship between people who know each other: owners who stop receiving distributions, are removed from management, see their stake diluted, or are refused information about the company's finances. Those disputes often run under state corporate law and the company's own documents, and many end in a buyout. In public companies, shareholder claims are more often class actions under federal securities laws or suits challenging a merger or a board decision, with procedural rules of their own and large numbers of investors involved. The first step is placing a dispute in the right setting, because the strategies barely overlap.
Direct claims and derivative claims
A shareholder can sue in their own right when the harm falls on them specifically, such as being denied a vote, a contractual right, or a distribution owed to them. When the harm falls on the company first, such as an officer diverting company funds, the claim generally belongs to the company and must be brought derivatively, with extra procedural steps and any recovery going to the company. Many disputes involve both kinds. Courts look at who suffered the harm and who would receive the recovery, and mislabeling a claim can lead to dismissal. Before filing either kind, shareholders often use their right to inspect books and records, which New York and other states provide in various forms.
Before the dispute escalates
Bring the certificate of incorporation, the bylaws, any shareholder agreement, the stock certificates or ledger entries showing your ownership, and the financial information you have received over time. Correspondence with other owners is often the most revealing material, so keep yours intact. Check whether the shareholder agreement contains an arbitration clause, a buy-sell provision, or a forum selection clause, because these can decide where and how the dispute is heard. Early in the engagement we sort out which claims are direct, which are derivative, and whether a negotiated exit is realistic before litigation costs mount.
