There are few things that can create tension and argument like money. It’s true in a marriage. It’s true among partners. And it’s true among members of a corporation. Whether the organization is a public company or privately held, shareholder disputes can arise whenever people object to how their money is being spent or the direction that is being taken, and the more shareholders there are, the more likely disagreement becomes. Though it is hard to prevent these challenges from occurring, having a strong shareholder agreement can help to avoid and dispel many issues.
Every organization that has owner members must have constitutional documents or a governing shareholder agreement that advises them of their rights. These generally include how they can or cannot sell or purchase shares, how directors should be nominated and voted on, how shareholder resolutions can be proposed or voted on, how dividends are paid, how assets will be liquidated, and how management proposals will be voted on. Shareholder agreements also contain the steps needed to sue the company’s management for violations of their fiduciary duties.
Most disputes arise when a company’s shareholders take issue with the way that a company is being managed, with the decisions that it is making, or with the way that money is being handled or mishandled. Examples of common shareholder disputes include:
- Lack of dividend distribution
- Breach of fiduciary duties
- Disagreements over company management or direction
- Concern over possible illegal or fraudulent activities
- Breach of a shareholder agreement
- Questions about compensation or contribution
- Conflicts of interest
- Minority shareholders feeling disrespected or disregarded
Although shareholder disputes can seem intractable and litigation can feel unavoidable, having experienced legal counsel involved at the earliest sign of trouble can often alleviate tension and help achieve consensus or resolution. In almost all cases the shareholder agreement itself will address exactly how shareholder disputes are to be managed, including procedures for forcing a disgruntled shareholder to sell their shares, addressing the issue at a shareholder meeting, appointing statutory directors, bringing in disinterested mediators, or dismissing a director. In acute situations, the answer may require winding the company up, selling it and distributing its proceeds to shareholders, or filing a lawsuit on behalf of the company.
For experienced and knowledgeable assistance in the face of a shareholder dispute, contact our firm today to set up a time to discuss your situation.
