Legal Updates

A shareholder is entitled to damages for acts of another shareholder only when the damage is direct and not a derivative of the damage caused to the company

November 17, 2020

A shareholder demanded reimbursement for sums unduly extracted from the company by the other shareholder.
The Court rejected the claim because the right of claim belongs to the company and not the shareholder. As a rule, one must distinguish between the legal personality of the company and its shareholders; between the relationship of the company to its shareholders and the relationship between the shareholders themselves. The company’s articles of association are the document which sets the legal basis for the relations between the company and the shareholders and the shareholders among themselves. Thus, when the damage caused to the shareholder is independent from the damages caused to the company, the shareholder is entitled to seek reimbursement for such damage from the other shareholders. However, when the damage was caused to the company itself, and the shareholders suffered equal (indirect) damage as a result of the damage to the company, the shareholder must show that the damage was caused due to a breach of a contractual, or other, right to it. Such as a breach of fiduciary duties oppression. Here, the shareholder did not suffer personal independent damages, segregated from the company, but rather as a derivative of the damage caused to the company. Therefore, if any entity is entitled to compensation due to undue drawing of monies by any of the shareholders, the company is the entitled party, and not the shareholder personally.