Because the management of corporations encourage people to invest their money in the corporation. If they didn’t owe any duties to the shareholders they could just pocket all the money and go off to Tahiti. If you have money that other people have entrusted to you, that generally triggers a fiduciary duty. Not just in corporate world.
Ok, I get it. Your first paragraph describes shareholders as suing the corporation for their personal benefit because they’ve been denied some benefit, or I suppose harmed in some other way… Your second paragraph is about cases where a corporation sues other parties and winning benefits the corporation, and through it the shareholders. Sorry, I confused something about and it sounded like a corporation could sue itself about some matter which makes no more sense than me suing myself. I’d hope I win, but even if I do I’ll lose also.
Companies are legally-defined entities because they get legally-defined benefits and protections (above all, limited liability) that aren’t available to individuals. This is because governments have seen general social benefit from allowing them those benefits.
If you want the general prosperity that markets can bring, then markets have to have some degree of definition and regulation that can be enforced in law: otherwise Gresham’s Law applies and you lose the general social benefit in the “war of all against all”.
Perhaps it would be useful to look at history. Corporations are a relatively new invention. Before that, for people to have joint ownership and come together to invest in something they had to trust each other pretty much completely. Your business partner uses up all the funds? Sucks to be you. Your business partner uses up all the funds and also racks up a bunch of debts? Really sucks to be you, you’re also responsible for that debt.
Corporation law exists to make it easier and more desirable to invest your money instead of keeping it in the mattress. And it’s worked great. It’s grown and now encompasses many different types of company and relationships, and there is healthy debate about how some parts are negative, but “the legal system [being involved] in the shareholder/corporatoin relationship” is not something widely questioned.
To build upon this post, in the beginning of US history a corporation was literally created by a state legislature, just as cities were. (The lawyer for a city is often still called the corporation counsel.) Corporations developed from charters granted by kings (or later parliaments); the charters gave an entity the exclusive right to conduct a certain kind of business in a certain place. The Dutch East India Company and its British rival were famous examples.
The US operated the same way. If you wanted the exclusive right to build a canal from Hither to Yon, you went to your state legislature and they passed a law giving you that right. Few corporations existed in the early US, because the effort necessary to get a state legislature to pass a law to create one was not worth the time and money (and bribes). Only as needs for money grew did corporations become more common. Still, just a few companies, mostly railroads, required the amount of capital that made it worthwhile.
As everything got larger and larger, the need to get a bill passed by a legislature was a pain to almost everyone, although it was an efficient way for a senator or representative to demand a sizable bribe. States developed rules of incorporation, in which a company filled out the proper paperwork and paid a fee and got the legal backing to operate, issue stock, and do all the other stuff we now consider normal. Some states made this process even more painless than others, which is why such a disproportional number of companies are incorporated in Delaware. That money is what gambling is to Nevada.
Corporations are therefore creatures of the state. They are legally liable to a whole bunch of special laws, and have responsibilities that can be taken to courts if they violate. This comes out of long history but has only streamlined with the times.
Corporations are kinda special this way, and kinda not. Literally everything we can say, do, or experience is subject to the laws of the land and therefore are justiciable. The legal system in the US can be involved in absolutely everything, and I’m pretty sure this is true in every other country if they wish it to be that way.
Can the OP explain why they think shareholders shouldn’t have legal rights against the corporation? I find the question in the OP odd.
It had to do with the ticky-tacky lawsuits against directors that in hindsight prevented the shareholder’s share value from rising a dollar. I was thinking this is pretty weird thing to be able to legitimately sue over and wondering why the legal system is all for hearing such cases. It really was a General Questions post that I accidentally posted in GD.
There doesn’t seem to be much of a debate on the topic though. I think @Exapno_Mapcase’s post was very informative.
IANAL, but I have business experience and I have had jobs where it was important that I understand this stuff,
First, “the shareholders” are usually not a monolith. They may have different interests. They may have different ideas as to what constitutes the best interest of the company.
It is not uncommon for companies to make a decision that damages one group of stakeholders while benefiting others. The mere fact that a corporation you own shares in acts against YOUR interests is not grounds for a lawsuit.
The boards I have served on are condo boards and HOA’s, and this happens ALL THE TIME on those boards. You take association money to fund an amenity that some owners don’t use or even like. You move someone’s parking spot to make a community garden, and that person hates gardens. These are the type of decisions that are clearly covered by the business judgement rule.
The fact that the stakeholder can prove they suffered actual damages doesn’t matter. Their recourse is voting out some or all of the board members and replacing them, or selling their shares.
The board picks a contractor for the garden that disappears halfway through the project, and they have to cut their losses at it costs the association money. That may be a mistake, and mistakes are covered by the business judgement rule.
Yes, the board is obligated to act in the best interests of the corporation. But the board also determines what the best interest of the corporation are. In practice, you really need to prove fraud, self-dealing, malice or gross negligence to sue the corporation.
If your board picked the wrong contractor because they took a kickback, you have a case. If they hired an unqualified family member that needed work out of sympathy, that’s still self-dealing, the officer doesn’t need to reap a financial benefit. But if they made an effort at due diligence and just ended up picking the wrong guy, you have no case.
By relatively new, you mean like 500+ years old.
~Max
I think a few of these were very successful a few years back and spawned more. But, I assume (hope) the shareholders have a pretty high burden to establish more than bad things happened or errors in judgment.
That’s not completely accurate.
Corporations are a legal structure for a business (as in defining rules of ownership, taxation, liability, etc). Sole proprietorships and partnerships are also legal structures. I’m not up on the complete history, but contracts and legal agreements certainly pre-date corporations and I’m sure partnerships had some legal recourse beyond “sucks to be you”.
Corporate law exists to separate the assets and liabilities of the corporation from that of the owners/shareholders and employees. This provides protection so that the owners /shareholders, managers, and employees can’t be personally sued for the actions of the company. For example, say you are the CEO of a trucking company and one of your trucks crashes into someone’s home, destroying it. The company can be sued, but they can’t come after your personal assets.
Which is not to say that it provides complete protection. Individuals can still be charged or sued if they commit crimes.
But the OP’s question of “why is the legal system involved in the shareholder/corporation relationship” is a strange one. The simple answer is that the entire shareholder/corporation relationship is a construct of the legal system. It is a contract of ownership between the shareholder and the corporation. If the corporation or its managers are not following their fiduciary duties, they are in violation of their contract, which then becomes a legal matter to resolve.
IANAL, but I did spend a lot of time consulting for lawyers in matters of digital evidence collection. So I did get to see some of the nuts and bolts of how large lawsuits work.
People sue companies for lots of reasons. Even if we limit our plaintiffs to just shareholders, there are many reasons they might sue the company. But the main constant theme is they are looking to recover damages.
In other words, I (the plaintiff) don’t give a crap about your profitability, your stock price or if you even go bankrupt. You cost me X amount of money because of some action Y that was in violation of law Z. So I am petitioning the court for you to provide recompense. If that means you need to sell off all your assets, so be it.
Usually when shareholders sue their company, it’s because the stock tanked due to some mismanagement or fraudulent action. Like if an investor bought a large stake in a company based on management’s projected earnings and it later turns out those projections were known to be fraudulent and the stock tanked. Or if management invested in some highly risky and speculative assets without performing proper due diligence.
I don’t claim to have a detail knowledge of the history, but it would be nice if you’d argue from a point of knowledge other than “I’m sure”. 
I am really describing “limited liability” in all it’s form rather than necessarily, but their histories are quite closely linked, and the OP didn’t really seem to be at a level where introducing new concepts was the best approach.
Now forms of limited liability have existed for a long time, but always very restricted. And partnerships were indeed “sucks to be you” up until very recently. (Sure, you could sue your erstwhile partner, but that wouldn’t get you out of your shared liability unless you had the money to wage the lawsuit, won, and your partner coughed up the money to cover the liability.)
By the 15th century, English law had awarded limited liability to monastic communities and trade guilds with commonly held property. In the 17th century, joint stock charters were awarded by the crown to monopolies such as the East India Company.[14] The world’s first modern limited liability law was enacted by the state of New York in 1811.[15] In England it became more straightforward to incorporate a joint stock company following the Joint Stock Companies Act 1844, although investors in such companies carried unlimited liability until the Limited Liability Act 1855.
As you see, between 1844 and 1855 it was somewhat easy to start a joint stock company in England, but the shareholders had unlimited liability!