TITLE 7
Corporations, Associations, and Partnerships

CHAPTER 7-1.2
Rhode Island Business Corporation Act

PART 7-1.2-701
Shareholders

SECTION 7-1.2-711


§ 7-1.2-711 Actions by shareholders.

(a) Subchapter Definitions. In this subchapter:

(1) "Derivative proceeding" means a civil suit in the right of a domestic corporation or, to the extent provided in subsection (h) of this section, in the right of a foreign corporation.

(2) "Shareholder" includes a beneficial owner whose shares are held in a voting trust or held by a nominee on the beneficial owner's behalf.

(b) Standing. A shareholder may not commence or maintain a derivative proceeding unless the shareholder:

(i) Was a shareholder of the corporation at the time of the act or omission complained of or became a shareholder through transfer by operation of law from one who was a shareholder at that time; and

(ii) Fairly and adequately represents the interests of the corporation in enforcing the right of the corporation.

(c) Demand. No shareholder may commence a derivative proceeding until:

(1) A written demand had been made upon the corporation to take suitable action; and

(2) Ninety (90) days have expired from the date the demand was made unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the ninety (90) day period.

(d) Stay of proceedings. If the corporation commences an inquiry into the allegations made in the demand or complaint, the court may stay any derivative proceeding for such period as the court deems appropriate.

(e) Dismissal.

(1) On motion by the corporation, the court shall dismiss a derivative proceeding if one of the groups specified in paragraphs (ii) or (vi) has determined in good faith after conducting a reasonable inquiry upon which its conclusions are based that the maintenance of the derivate proceedings is not in the best interests of the corporation.

(2) Unless a panel is appointed pursuant to paragraph (vi), the determination in paragraph (i) must be made by:

(i) A majority vote of independent directors present at a meeting of the board of directors if the independent directors constitute a quorum; or

(ii) A majority vote of a committee consisting of two (2) or more independent directors appointed by majority vote of independent directors present at a meeting of the board of directors, whether or not such independent directors constituted a quorum.

(3) None of the following by itself causes a director to be considered not independent for purposes of this section:

(i) The nomination or election of the directors or persons who are defendants in the derivative proceedings or against whom action is demanded;

(ii) The naming of the director as a defendant in the derivative proceeding or as a person against whom action is demanded; or

(iii) The approval by the director of the act being challenged in the derivative proceeding or demand if the act resulted in no personal benefit to the director.

(4) If a derivative proceeding is commenced after a determination has been made rejecting a demand by a shareholder, the complaint must allege with particularity facts establishing either (A) that a majority of the board of directors did not consist of independent directors at the time the determination was made, or (B) that the requirements of subsection (a) of this section have not been met.

(5) If a majority of the board of directors does not consist of independent directors at the time the determination is made, the corporation has the burden of proving that the requirements of paragraph (i) have been met. If a majority of the board of directors consists of independent directors at the time the determination is made, the plaintiff has the burden of proving that the requirements of paragraph (i) have not been met.

(6) The court may appoint a panel of one or more independent persons upon motion by the corporation to make a determination whether the maintenance of the derivative proceeding is in the best interests of the corporation. In such case, the plaintiff has the burden of proving that the requirements of paragraph (i) have not been met.

(f) Discontinuance or settlement. A derivative proceeding 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 interests of the corporation's shareholders or a class of shareholders, the court shall direct that notice be given to the shareholders affected.

(g) Payment of expenses. On termination of the derivative proceeding the court may:

(1) Order the corporation to pay the plaintiff's reasonable expenses (including counsel fees) incurred in the proceeding if it finds that the proceeding has resulted in a substantial benefit to the corporation;

(2) Order 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 or maintained without reasonable cause or for an improper purpose; or

(3) Order a party to pay an opposing party's reasonable expenses (including counsel fees) incurred because of the filing of a pleading, motion or other paper, if it finds that the pleading, motion or other paper was not well grounded in fact, after reasonable inquiry, or warranted by existing law or a good faith argument for the extension, modification or reversal of existing law and was interposed for an improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.

(h) Applicability to foreign corporations. In any derivative proceeding in the right of a foreign corporation, the matters covered by this subchapter are governed by the laws of the jurisdiction of incorporation of the foreign corporation except for subsections (d), (f), and (g) of this section.

History of Section.
(P.L. 2004, ch. 216, § 2; P.L. 2004, ch. 274, § 2; P.L. 2005, ch. 120, § 1; P.L. 2005, ch. 130, § 1.)