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Why close ties do not prevent shareholder disputes

On Behalf of | Jan 3, 2024 | Business, Business Litigation

The idea of forming your own company can be quite exciting, especially if you are to create one with your friends. You begin with a shared dream and work together to make it a reality. Ideally, you can maintain close relationships by separating personal matters from business-related issues. However, in the dynamic business landscape of Texas, shareholder disputes are an inevitable aspect of corporate life.

Disagreements can arise from a multitude of issues, ranging from divergent views on management decisions to differences in the company’s direction. You and your friends will not always agree on everything. The impact of these disputes can be profound, often affecting the company’s operations and the relationships between shareholders.

How to deal with shareholder disputes

The first step in effectively managing shareholder disputes is to understand the rights that shareholders have under Texas law. Shareholders in Texas have the right to inspect company records, vote on significant corporate changes and receive dividends, among other rights. When exercising their rights, they must always act in the company’s best interests. A shareholder who does not act in good faith and puts their needs before the needs of the company could cause you and your business to suffer damages. Common triggers for shareholder disputes include the following:

  • Breach of contract or the shareholder agreement
  • Disagreements over dividend policies, business strategy, or investment decisions
  • Allegations of fraud, misrepresentation, or oppression of minority shareholders
  • Disputes over the valuation of shares
  • Issues related to the transfer or sale of shares

If you want to preserve what remains of your friendship, you can consider mediation and arbitration. These methods can allow you to negotiate with the shareholder and find a way to resolve a dispute without going to court. When other methods fail, litigation may be the only option left. You could bring a civil lawsuit against the shareholder.

How to prevent shareholder disputes

Even though you own the company with people you know and have close ties with, you still want to ensure each of you understands your obligation to the company. Shareholder agreements and the company’s bylaws play a crucial role in defining the relationship between shareholders and the company. Well-drafted shareholder agreements should include explicit provisions for dispute resolution and exit strategies for shareholders. They can provide a roadmap for navigating potential disputes whenever they arise, which is why they are essential to any corporation.