Kentucky Statutes 271B.7-400 – Procedure in derivative proceedings — Shareholders of a public benefit corporation
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(1) A person shall not commence a proceeding in the right of a domestic or foreign corporation unless he was a shareholder of the corporation when the transaction complained of occurred or unless he became a shareholder through transfer by operation of law from one who was a shareholder at that time. The derivative proceeding shall not be maintained if it appears that the person commencing the proceeding does not fairly and adequately represent the interests of the shareholders in enforcing the right of the corporation.
(2) A complaint in a proceeding brought in the right of a corporation shall be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why he did not make the demand. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
(3) A proceeding commenced under this section may not be discontinued or settled without the court’s approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation’s shareholders or a class of shareholders, the court shall direct that notice be given the shareholders affected.
(4) On termination of the proceeding the court may require the plaintiff to pay any defendant‘s reasonable expenses, including counsel fees, incurred in defending the proceeding if it finds that the proceeding was commenced without reasonable cause.
(5) For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or held by a nominee on his behalf.
(6) In any derivative proceedings in the right of a foreign corporation, the matters covered by this section shall be governed by the laws of the jurisdiction of incorporation.
(7) The articles of incorporation of the corporation may provide that proper venue for a derivative action or an action to compel the production of books and records is in or only is in the appropriate court.
(8) Shareholders of a public benefit corporation owning individually or collectively, as of the date of instituting a derivative proceeding, at least two percent (2) of the corporation’s outstanding shares or, in the case of a corporation with shares listed on a national securities exchange, the lesser of that percentage or shares of at least two million dollars ($2,000,000) in market value, may maintain a derivative proceeding to enforce the requirements set forth in KRS
271B.8-300(8).
Effective:June 29, 2017
History: Amended 2017 Ky. Acts ch. 28, sec. 6, effective June 29, 2017. — Amended 2015 Ky. Acts ch. 34, sec. 7, effective June 24, 2015. — Repealed and reenacted 2010 Ky. Acts ch. 51, sec. 64, effective July 15, 2010. — Amended
2007 Ky. Acts ch. 137, sec. 64, effective June 26, 2007. — Created 1988 Ky. Acts ch. 23, sec. 67, effective January 1, 1989.
Legislative Research Commission Note (7/15/2010). 2010 Ky. Acts ch. 51, sec.
183, provides, “The specific textual provisions of Sections 1 to 178 of this Act which reflect amendments made to those sections by 2007 Ky. Acts ch. 137 shall be deemed effective as of June 26, 2007, and those provisions are hereby made expressly retroactive to that date, with the remainder of the text of those sections being unaffected by the provisions of this section.”
(2) A complaint in a proceeding brought in the right of a corporation shall be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why he did not make the demand. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
Terms Used In Kentucky Statutes 271B.7-400
- Action: includes all proceedings in any court of this state. See Kentucky Statutes 446.010
- Articles of incorporation: include amended and restated articles of incorporation and articles of merger. See Kentucky Statutes 271B.1-400
- Complaint: A written statement by the plaintiff stating the wrongs allegedly committed by the defendant.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Corporation: may extend and be applied to any corporation, company, partnership, joint stock company, or association. See Kentucky Statutes 446.010
- Defendant: In a civil suit, the person complained against; in a criminal case, the person accused of the crime.
- Directors: when applied to corporations, includes managers or trustees. See Kentucky Statutes 446.010
- Domestic: when applied to a corporation, partnership, business trust, or limited liability company, means all those incorporated or formed by authority of this state. See Kentucky Statutes 446.010
- Foreign: when applied to a corporation, partnership, limited partnership, business trust, statutory trust, or limited liability company, includes all those incorporated or formed by authority of any other state. See Kentucky Statutes 446.010
- Foreign corporation: means a corporation for profit incorporated under a law other than the law of this state. See Kentucky Statutes 271B.1-400
- Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
- Owner: when applied to any animal, means any person having a property interest in such animal. See Kentucky Statutes 446.010
- Person: includes individual and entity. See Kentucky Statutes 271B.1-400
- Plaintiff: The person who files the complaint in a civil lawsuit.
- Proceeding: includes civil suit and criminal, administrative, and investigatory action. See Kentucky Statutes 271B.1-400
- Public benefit: means a positive effect or reduction of negative effects on one (1) or more categories of persons, entities, communities, or interests other than stockholders in their capacities as stockholders. See Kentucky Statutes 271B.1-400
- Remainder: An interest in property that takes effect in the future at a specified time or after the occurrence of some event, such as the death of a life tenant.
- Settlement: Parties to a lawsuit resolve their difference without having a trial. Settlements often involve the payment of compensation by one party in satisfaction of the other party's claims.
- Shareholder: means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. See Kentucky Statutes 271B.1-400
- Venue: The geographical location in which a case is tried.
(3) A proceeding commenced under this section may not be discontinued or settled without the court’s approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation’s shareholders or a class of shareholders, the court shall direct that notice be given the shareholders affected.
(4) On termination of the proceeding the court may require the plaintiff to pay any defendant‘s reasonable expenses, including counsel fees, incurred in defending the proceeding if it finds that the proceeding was commenced without reasonable cause.
(5) For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or held by a nominee on his behalf.
(6) In any derivative proceedings in the right of a foreign corporation, the matters covered by this section shall be governed by the laws of the jurisdiction of incorporation.
(7) The articles of incorporation of the corporation may provide that proper venue for a derivative action or an action to compel the production of books and records is in or only is in the appropriate court.
(8) Shareholders of a public benefit corporation owning individually or collectively, as of the date of instituting a derivative proceeding, at least two percent (2) of the corporation’s outstanding shares or, in the case of a corporation with shares listed on a national securities exchange, the lesser of that percentage or shares of at least two million dollars ($2,000,000) in market value, may maintain a derivative proceeding to enforce the requirements set forth in KRS
271B.8-300(8).
Effective:June 29, 2017
History: Amended 2017 Ky. Acts ch. 28, sec. 6, effective June 29, 2017. — Amended 2015 Ky. Acts ch. 34, sec. 7, effective June 24, 2015. — Repealed and reenacted 2010 Ky. Acts ch. 51, sec. 64, effective July 15, 2010. — Amended
2007 Ky. Acts ch. 137, sec. 64, effective June 26, 2007. — Created 1988 Ky. Acts ch. 23, sec. 67, effective January 1, 1989.
Legislative Research Commission Note (7/15/2010). 2010 Ky. Acts ch. 51, sec.
183, provides, “The specific textual provisions of Sections 1 to 178 of this Act which reflect amendments made to those sections by 2007 Ky. Acts ch. 137 shall be deemed effective as of June 26, 2007, and those provisions are hereby made expressly retroactive to that date, with the remainder of the text of those sections being unaffected by the provisions of this section.”