Internal disputes are a fact of life in business. This is due to differing priorities, not meeting expectations, misunderstandings, or other issues. Ideally, partners or colleagues can sit down and work through a problem without impacting the company, but shareholder disputes can get complicated with serious repercussions. CEOs or board members may be dismissed or embroiled in a lawsuit. Whatever the issue, it can impact short-term performance and long-term growth.
Common shareholder disputes
These are three common causes of a shareholder dispute:
Disagreements between majority and minority shareholders: The majority shareholders have the authority to make decisions about a company’s direction, but the minority shareholders still have rights. If the majority only serves their needs, such as refusing to offer dividends to the minority, the minority may want to take legal action.
Breach of shareholders agreement: Every business has contracts that outline responsibilities, expectations and obligations. Contracts include such issues as provisions for the pricing, buying and selling shares. It may be a breach if someone sells shares to someone outside the company or at a time that violates the agreement.
Breach of fiduciary duty: The executives and board are obligated to eschew personal interests in favor of actions that benefit the company and shareholders. They cannot withhold or alter important business information or financial data if other shareholders have a right to know the truth.
What can be done?
Agreements will outline the consequences of a breach. It starts with negotiation, mediation or arbitration. If these avenues are unsuccessful, litigation may be the only option for resolving the dispute. While it may damage the company and its reputation in the short term, it still better than jeopardizing the company’s existence in the face of serious financial or legal issues.