Shareholder disputes are a common occurrence in the business world, often arising from disagreements related to closely held corporations where the ownership is concentrated among a few individuals. These disputes can stem from a variety of issues related to the management, direction and policies of the company in question.
Recognizing and understanding the common kinds of shareholder disputes can help businesses navigate these challenges more effectively and seek appropriate legal remedies more efficiently.
Concerns about business direction and management decisions
Shareholders may have differing visions for the future of the business or disagree on significant operational decisions, such as mergers and acquisitions, expansion plans or investment strategies.
Breaches of fiduciary duty
Certain “players” in a company, particularly those in directorial or managerial positions, owe a fiduciary duty to the corporation and its shareholders. This duty includes acting in the best interest of the company and making decisions that benefit all shareholders fairly. Allegations of breach of fiduciary duty can arise when shareholders believe that directors or officers have acted in their own interests rather than those of the company, such as engaging in self-dealing, misappropriating company assets or neglecting their responsibilities.
Minority shareholder oppression
Minority shareholder oppression occurs when the actions of majority shareholders or the company’s directors disadvantage the minority shareholders. This can include denying minority shareholders access to important company information, excluding them from decision-making processes or engaging in financial practices that dilute their shares’ value.
Concerns about dividends and financial rights
Another common area of contention among shareholders involves disputes over dividends, profit distribution and other financial rights. Shareholders may disagree on how much of the company’s profits should be reinvested in the business versus distributed as dividends. Conflicts can also arise from allegations of financial mismanagement, including concerns over excessive executive compensation, misuse of company funds or inaccurate financial reporting.
Navigating shareholder disputes requires a strategic approach. Legal professionals can help companies and shareholders understand their rights and obligations, explore dispute resolution options and pursue actions that protect their interests and the long-term viability of a business.