Shareholder Disputes and Liability of Bodies

Shareholder Disputes Lawyer in Lugano

When a conflict between shareholders reaches breaking point, the legal routes differ depending on who acts, against whom and in protection of which interest. Haab Legal assists both the minority shareholder who wants to assert their rights against the board or a majority shareholder, and the company itself when a director or shareholder has caused it harm.

The actions available to the shareholder

Challenge of general meeting resolutions (art. 706 CO)

A shareholder who did not approve a resolution may seek its annulment before the court (art. 706 CO) on one of the following grounds: the resolution breaches the law or the articles, removes or restricts shareholders' rights in a way not justified by the company's purpose, or breaches the principle of equal treatment. Peremptory deadline: 2 months from the date of the general meeting (art. 706a CO).

Typical cases: financial statements approved without adequate information on the underlying data, a capital increase at an inequitable price diluting minority shareholders, distribution of profits without cover in the reserves, appointments of directors not in compliance with the articles, amendments to the articles without the quorum of art. 704 CO.

Exclusion of an LLC quotaholder (art. 822 CO)

The exclusion of a limited liability company quotaholder is governed by art. 822 CO and requires a members' resolution with two thirds of the votes represented and a majority of the nominal values. The resolution may be challenged by the excluded quotaholder within 3 months before the District Court. The ground for exclusion must be stated in the articles (typical serious grounds: breach of the non-compete obligation, repeated harm to the company, seriously improper conduct). Without specification in the articles, exclusion is rare and almost never upheld by the court.

For the public limited company there is no general institution for excluding a shareholder. Alternative routes: statutory share buy-back clauses, shareholders' agreements with buy-or-sell clauses, an action for dissolution for good cause (art. 736 para. 4 CO).

Liability action against the bodies (art. 754 CO)

Directors, officers and auditors are liable for the damage they cause to the company through intentional or negligent breach of their duties (art. 754 et seq. CO). The action may be brought:

• By the company itself, on a resolution of the meeting that requires the board not to be granted discharge for the financial statements in question.
• By individual shareholders, but only to obtain performance to the company (not to the shareholder personally). The shareholder acts at their own cost risk.
• By the creditors, in the event of the company's bankruptcy, after the bankruptcy estate has waived the action (art. 757 CO).

Three practical principles. Reversed burden of proof: once the damage and the breach of a duty are proven, it is for the board to show that it acted without fault. Joint and several liability (art. 759 CO): all directors who took part in the harmful decision are jointly and severally liable, subject to proof of their own non-involvement or documented opposition. Discharge by the meeting (art. 758 CO): releases from liability towards the company for the facts known to the meeting, but not towards the creditors and not towards the shareholders who voted against.

Limitation period: 3 years from knowledge of the damage and of the person liable, in any event 10 years from the act (art. 760 CO). In Ticino these disputes are a niche, but when they arise they involve a high amount in dispute.

Action for dissolution for good cause (art. 736 para. 4 CO)

When coexistence between shareholders has become impossible and no less drastic solution is feasible, art. 736 para. 4 CO allows a shareholder to ask the court to dissolve the company for good cause. It is the last resort: the court always assesses whether alternative solutions exist (exclusion of the responsible shareholder, sale of the shares at a fair value, recourse to a mediator). Rarely granted, but the mere threat often pushes towards a negotiated solution.

The shareholder's information rights

The first step before any action is almost always a request for access to the company books and documentation. For the public limited company, the shareholder has the right to consult the share register and the minutes of the board at the meeting (art. 696 CO) and to request information from the bodies on the company's affairs necessary for the exercise of their rights (art. 697 CO). For requests outside the meeting, a legitimate interest must be established.

For the limited liability company the right is broader: the quotaholder may consult the books and documents at any time (art. 802 CO), subject to exceptions in the articles. If the board or the managers refuse access, one applies to the court for a production order. Without accounting data and minutes, building a liability or challenge action is impossible.