5 Common Shareholder Disputes

Shareholder disputes are a serious concern that can bring your business to its knees. When you get into a disagreement with your partner(s), it can affect the ongoing performance of the business. It can ruin your reputation and cripple your ability to deliver goods or services as efficiently as possible. 

If the dispute is not successfully resolved, it can cause permanent damage to your brand and even result in your company’s closure. As such, it is extremely important to take proactive measures to deal with disagreements as soon as they arise. Here are five common shareholder disputes.

  1. Disagreements Over Major Decisions

This is one of the most common shareholder disputes, especially when it comes to small family corporations. Disagreements over the future of the company or even a decision to close the business can create a rift between the shareholders. A dispute can also occur when making decisions regarding firing or reducing the number of staff, opening a new branch or office, and making large purchases. 

  1. Breaching the Shareholder Agreement 

If a shareholder violates the shareholder agreement, it could lead to a major dispute. Some breaches are quite serious, for instance when a shareholder sells their shares to a competitor or rival company contrary to the shareholder agreement. A dispute can also arise if one shareholder desires to terminate the whole shareholder agreement without support from the other shareholders. 

  1. Fiduciary Misdeeds

When it comes to privately held companies, shareholders are expected to be open and honest with each other in matters affecting the business. Majority shareholders, in particular, are required to maintain these fiduciary duties when dealing with the minority shareholders. As such, withholding vital information or having conflicts of interest with other shareholders can cause a major dispute. 

  1. Disregard to Minority Shareholders

Minority shareholders generally have limited influence over the company and are therefore at a huge disadvantage when it comes to making huge decisions. In some cases, the stock of the minority shareholders is tied up and under the control of the majority shareholders.

Fortunately, many states recognize and acknowledge the rights of minority shareholders. Those who feel oppressed can sue on various grounds, for instance being denied access to corporate documents, majority shareholders using corporate funds to pay for personal expenses, and not being awarded dividends. 

  1. Differences in Contribution/Compensation

Ideally, compensation should be done according to each shareholder’s contribution, which is usually determined by their training, industry, and experience. When it becomes vivid that some shareholder employees are compensated more than others just because of their family connection, a dispute is inevitable. Differences in contributions, whether sweat equity or monetary, can also lead to a shareholder dispute especially if one shareholder is seen to be slagging on their end. 

Shareholders vary in shape and size, but regardless of their stake in the business, there is always a possibility of getting into a conflict. If you are involved in a shareholder dispute and need legal assistance with your case, you can count on the Law Office of Ray Garcia, P.A. Get in touch now.