I was writing about the court's third dismissal when I found that I see it as questionable thing and cannot understand how courts deal with shareholder plaintiff standing in dilution cases.
Here is what one court states:
[Delaware case law states that "if a board of directors authorizes the issuance of stock for no or grossly inadequate consideration, the corporation is directly injured and shareholders are injured derivatively"] (In re J.P. MORGAN CHASE & CO. SHAREHOLDER LITIGATION 906 A.2d 808 (2005))
I don't see how that could be the best understanding for such situations?
Shareholders are the owners of the corporation and modifying the percentage of their ownership affect them directly.
My understanding is that a corporation is a legal entity that own assets but it does not own itself, at least when there exist owner(s) for it. When a corporation is sold the selling price would go to its owner(s) and not to the corporation itself. Dilution can be seen as selling of the corporation with the proceeds reinvested back in the corporation.
What about authorized shares in the article of incorporation? I think that understanding these shares as being owned by the corporation, if there exist such understanding, is a weak thing if not totally wrong. Instead, authorized shares can be understood as shares the board of directors is authorized to use for the benefit of the corporation. While the corporation is the pre-assigned owner for the proceeds from selling or any benefit from these authorized shares, that still wouldn't mean only a derivative standing for cases challenging dilution by insiders. That is because the issuance of any authorized shares should not be fraudulent to shareholders and/or should not violate the fiduciary duty of the board to shareholders in order to be correctly done to be used for the benefit of the corporation. Since dilution cases are usually based on challenging or questioning one or both of the two factors just mentioned, that means there is a direct standing to bring these lawsuits.
I don't see anything indicating that authorized shares are authorized for issuance for the benefit of the corporation regardless or in exclusion of the general requirement of fiduciary duty or avoiding fraud to shareholders.
I understand the mentioning of authorized shares with the assets of a corporation not as being directly part of the assets but as a vehicle that is pre assigned to be used for the benefit of the corporation.
In addition, the derivative standing doesn't even make comparable sense in comparison to the direct shareholder standing when it comes to the injury suffered as a result of the dilution. First, shares could be issued at the best price possible and increase the assets of a corporation considerably but still injure shareholders if they were better before the issuance of those shares than after that or if the issuance of shares serve no purpose other than making the current shareholders share ownership with some other people.
Second, even when shares are sold at low prices the dilution resulted from these low prices would still injure shareholders directly through dilution much more than it injures the corporation through the use of the authorized shares for these low prices. As long as authorized shares can be increased it wouldn't make much of a difference for a corporation whether it raise the same amount of money through the issuance of hundred shares or million shares. Why continuous increase of authorizing and issuing of shares is not taken into account? Because it injures shareholders. So, as seen here, we took a full circle turn and ended back again to the direct injury to shareholders.
About a year ago I was lacking the most basic understanding and knowledge for law related matters, so I don't know how failing to see that could be that common in courts and there could be an answer to what I wrote here. Nevertheless the current path work better for corporations and I have seen how things get adjusted here for the better benefit of those with the financial power and that is why I am questioning this.
It also seems to me that incorrectly taking away the direct right to bring a lawsuit is a violation of the constitutional due process.
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