Common Shareholder Disputes How to Resolve Them

The term shareholder is not just relevant to Fortune 500 companies. A shareholder is any individual or institution that legally owns at least one share of stock in a private or public corporation. If you own stock in a company, or your pension includes publicly traded stocks, you are a shareholder. Shareholders are also sometimes called members of a corporation. Shareholders essentially have a financial interest in a corporation or company. Considering the money at stake, shareholders can get into any number of different types of disputes.

With more and more owners of a company, it’s inevitable that disputes will arise about how the company is managed. Hopefully, the shareholders can work together to resolve these disputes. Sometimes they cannot, and shareholders need their own attorney representation.

Business Disputes Attorney Michael Long

Shareholder Rights

The rights and responsibilities of a shareholder differ according to the governing shareholder agreement. Shareholders commonly have the right to:

  • Sell their shares;
  • Purchase new shares; 
  • Nominate directors;
  • Vote on directors nominated by the board of directors; 
  • Propose shareholder resolutions;
  • Vote on shareholder resolutions; 
  • Receive payment of dividends;
  • Sue the company for violations of a fiduciary duty;
  • Vote on management proposals; and 
  • Receive payment of assets remaining after liquidation.

A shareholder’s rights and responsibilities are outlined in the company’s constitutional documents, e.g., the articles of incorporation and any shareholder agreements. The rights such an agreement provides will inform the method shareholders choose to resolve their disputes.

What Is a Shareholder Dispute?

Shareholder disputes can be disagreements among shareholders or between shareholders and the owners of the company. Shareholder disputes can take on a number of different forms. Whether shareholders disagree with the company’s management style or decision-making or there has been an instance of fraud or illegal conduct, shareholder disputes can differ widely.

Examples of Common Shareholder Disputes

Shareholders get into disagreements over any number of issues. With money on the line, shareholder disputes can be contentious. Examples of common shareholder disputes include:

  • Breach of a shareholder agreement;
  • Disagreements over direction;
  • Disagreements over company management;
  • Breach of fiduciary duties;
  • Minority shareholders not getting enough respect;
  • Differences in compensation or contribution; 
  • Conflicts of interest;
  • Personal problem affecting business relationships; 
  • Lack of dividend distributions;
  • Concern over possible illegal or fraudulent activities; and
  • Breach of a director’s service contract.

Disputes amongst shareholders are common and often high-stakes. Failure to seek legal advice early in the course of a shareholder dispute regarding a shareholder’s legal rights and strategies can escalate the seriousness of the dispute. For this reason, it is important to seek the advice of an experienced business law attorney as soon as possible.

How to Resolve Common Shareholder Disputes

The first step to resolving a shareholder dispute is to look over the shareholder agreement. The manner in which shareholder disputes are resolved may be determined by the governing shareholder agreement. A shareholder agreement will likely include provisions that provide procedures for forcing a shareholder to sell their shares given certain circumstances. If the shareholder agreement does not provide any such procedures, shareholders can and should form a shareholder agreement during the process of resolving the dispute.

Other methods for resolving shareholder disputes include:

  • Proposing a resolution to address the dispute at a general meeting;
  • Appointing a disinterested director, board advisor, etc. to resolve the dispute; 
  • Appointing additional statutory directors, etc. to avoid deadlock and bring a fresh perspective; 
  • Calling a general meeting of the shareholders to consider a resolution dismissing a director;
  • Terminating a shareholder’s employment, if applicable, under an employee settlement agreement;
  • Engaging a neutral professional mediator to resolve the dispute;
  • Arranging a buyout by an external buyer, another shareholder, or the company, in accordance with the company’s articles and any governing shareholder agreements;
  • Selling the company and distributing the proceeds to shareholders in accordance with the articles of association and any governing shareholder agreement;
  • Presenting a petition to have the company wound up, if it is just and equitable to do so; or
  • Filing a lawsuit, known as a derivative claim, on behalf of the company against the wrongdoers;

The method of resolution you choose depends on the specific circumstances of your dispute. No matter what you decide to do, you should first consult all applicable shareholder agreements and the articles of association. Your rights and responsibilities will be limited by any such agreements, so it is important to be educated about their requirements. You should also be sure to consult an experienced business law attorney who can help you interpret your operating agreement and explain applicable state and federal laws.

How BrewerLong Can Help 

BrewerLong is a Florida-based law firm that handles all manner of business law cases. From formation to dissolution, we can represent you throughout the life of your business. Our team of experienced business law attorneys works tirelessly to provide individualized services. Contact us today for a consultation. We’ll work with you to develop the best strategy for your case.

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