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This section looks at the strength of minority shareholder protections against directors’ misuse of corporate assets for personal gain in Puerto Rico.
The country data appearing on this page comes from a survey of corporate lawyers and is based on securities regulations, company laws, and court rules of evidence. It was collected as part of the Doing Business project, which measures and compares regulations relevant to the life cycle of a small- to medium-sized domestic business in 183 economies. The most recent round of data collection for the project was completed in June 2009.
The table below lists the main indicators for protecting investors. They are:
The Strength of Investor Protection Index, which is the average of the Extent of Disclosure Index, the Extent of Director Liability Index and the Ease of Shareholder Suits Index. The index ranges from 0 to 10, with higher values indicating more investor protection.
The Extent of Disclosure Index, which measures the transparency of transactions. The index ranges from 0 to 10, with higher values indicating greater disclosure.
The Extent of Director Liability Index, which measures the liability for the use of corporate assets by company insiders for personal gain. The index ranges from 0 to 10, with higher values indicating greater liability of directors.
The Ease of Shareholder Suits Index, which measures shareholders’ ability to sue officers and directors for misconduct. The index ranges from 0 to 10, with higher values indicating greater powers of shareholders to challenge the transaction.
What corporate body provides legally sufficient approval for the transaction? (0-3; see notes)
1
Immediate disclosure to the public and/or shareholders (0-2; see notes)
2
Disclosures in published periodic filings (0-2; see notes)
2
Disclosures by Mr. James to board of directors (0-2; see notes)
2
Requirement that an external body review the transaction before it takes place (0=no, 1=yes)
0
Extent of director liability index (0-10)
6
Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company. (0-2; see notes)
1
Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for damage to the company. (0-2; see notes)
2
Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0-2; see notes)
0
Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff (0=no, 1=yes)
1
Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff (0=no, 1=yes)
1
Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes)
0
Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction causes to the company (0-1; see notes)
1
Ease of shareholder suits index (0-10)
8
Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see notes)
4
Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see notes)
1
Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 1=yes)
1
Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction (0=no, 1=yes)
0
Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes)
1
Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before filing suit (0=no, 1=yes)
1
Notes:
Extent of Disclosure Index (0-10)
What corporate body provides legally sufficient approval for the transaction? 0=CEO or managing director alone; 1=shareholders or board of directors vote and Mr. James can vote; 2=board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote
Immediate disclosure to the public and/or shareholders 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest
Disclosures in published periodic filings 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest
Disclosures by Mr. James to board of directors 0=none; 1=existence of a conflict without any specifics; 2= full disclosure of all material facts
Director Liability Index (0-10)
Shareholder plaintiff’s ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company 0= Mr. James is not liable or liable only if he acted fraudulently or in bad faith; 1= Mr. James is liable if he influenced the approval or was negligent; 2= Mr. James is liable if the transaction was unfair, oppressive or prejudicial to minority shareholders
Shareholder plaintiff’s ability to hold the approving body (the CEO or board of directors) liable for for damage to the company 0=members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1=liable for negligence in the approval of the transaction; 2=liable if the transaction is unfair, oppressive, or prejudicial to minority shareholders
Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0=rescission is unavailable or available only in case of Seller's fraud or bad faith; 1=available when the transaction is oppressive or prejudicial to minority shareholders; 2=available when the transaction is unfair or entails a conflict of interest
Shareholder plaintiffs’ ability to sue directly or derivatively for damage the transaction causes to the company 0=not available; 1=direct or derivative suit available for shareholders holding 10% of share capital or less
Shareholder Suits Index (0-10)
Documents available to the plaintiff from the defendant and witnesses during trail Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense; (2) information that directly proves specific facts in the plaintiff’s claim; (3) any information that is relevant to the subject matter of the claim; and (4) any information that may lead to the discovery of relevant information.
Ability of plaintiffs to directly question the defendant and witnesses during trial 0=no; 1=yes, with prior approval by the court of the questions posed; 2=yes, without prior approval
Strength of Investor Protection Index (0-10)
Average of the extent of disclosure index, director liability index, and shareholder suits index.
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