Corporation suing shareholder

[Artskip]

Greetings to All!

A short foreword. My question relates to an EU country law governing housing companies, which is primarily based on general principles of corporate law. My question is of general nature and could be projected onto any corporation under any jurisdiction. I don't expect an exact and definitive answer to my question, just hope to be pointed in the right direction.

The scenario:
A corporation decides to sue a physical person, who is also a 25% shareholder of that corporation. The corporation loses the lawsuit and has to cover own legal expenses as well as legal expenses of the defendant, let's say 10000 + 10000 = 20000 USD. The corporation does not have any cash reserves to cover these expenses, so the only way to pay litigation expenses is by shareholder funding. So, the question: does the shareholder who was the defendant and won the case also share litigation expenses as 25% owner of the corporation (so pays his 5000) or is there some provision in the law that excludes him/her from that? Or could the court ruling specifically name who covers the expenses?

Thinking logically: as minority shareholder, the defendant had no way to prevent to corporation from filing the lawsuit against him/her. He/she was right and won the case. He/she (logically) should not be responsible for the expenses and consequences of decisions he/she did not have any affect on. Are there any provisions in the law addressing such cases or is it one of the rare cases where logic and real life go different ways?

Thanks in advance for suggestions and opinions. Art

 

[Zigner]

Sorry - this forum is for US law matters only.

 

[Artskip]

I understand and respect that, so could I get an answer from the US corporat law point of view?

 

[Zigner]

I understand and respect that, so could I get an answer from the US corporat law point of view?

Sorry - there are 50 states, plus associated territories, etc. That, coupled with the fact that US law is not EU law, means that it's simply not appropriate to do so.

As stated, this forum focuses on US law matters. Seek local assistance for your matter.

 

[Tax Counsel]

I understand and respect that, so could I get an answer from the US corporat law point of view?

It very much matters what country's law applies since this is definitely not something that is the same in all countries or even all western democracies. For example, the general rule in litigation in the U.S. is that each party bears his/her/its own legal expenses (known as the American rule), whereas in the UK the default rule is just the opposite (known as the English rule). So in the U.S. the corporation would typically not have to pay the shareholder's legal expenses, only its own.

As for a capital call to pay those litigation expenses, in the U.S. all the shareholders would have to meet the capital call, assuming of course that the corporate charter allows for capital calls. The fact that the money is being raised to pay the litigation expense for the one shareholder whom the corporation litigated against would not change that. The shareholder is still obligated to participate in the capital calls just like any other shareholder. His/her shares benefit from the corporation's performance and the shareholder should be expected to contribute to the corporation just like all the others.

But the rules for all of this may be different, perhaps very different, in some other country. Again, this is not something that is handled the same way in every country. U.S. law in particular often differs from EU law and the law of European nations that are not based on UK common law, e.g. civil code countries like France and Spain.