Shareholders hold an enormous amount of power. In short, your business is beholden to them, requiring you to focus on maximizing profits and driving your business in a way that satisfies shareholders. That may be easy to do in some market conditions, but there may come a time when you and your business end up in conflict with your shareholders. Although you may be able to find a way to resolve the matter amicably, sometimes litigation is unavoidable.
Knowing that this is a possibility, you need to know how shareholder disputes come up and what you can do to protect your business during such litigation. Let’s take a closer look so that you have a little more insight into these matters.
Under what circumstances do shareholder disputes arise?
Shareholder disputes can bubble up in a number of ways. Here are some of the most common:
- Accusations that the fiduciary duty has been breached: Most executives in a business carry a fiduciary duty, meaning that they have to put the interests of the business and shareholders ahead of their own personal gain. Although that may sound like common sense, people can act contrary to their own employer’s interests when money is on the line. When this happens, shareholders can be duped out of earnings as the business loses value and profits may drop, thereby decreasing share prices and any dividends that are paid out.
- Prejudice against minority shareholders: Those who hold more shares in a business carry more power and influence. But when this weight is used to steer the business in a way that is harmful to minority shareholders, litigation can arise.
- Breach of the shareholder agreement: Many businesses use shareholder agreements to specify how the business will be managed and which types of decisions will require shareholder approval. This contract can have any number of terms that shareholders and business executives think are important, but since they’re contractual in nature they must be adhered to. Otherwise, a legal claim may be filed.
- Poor management: Above we mentioned breach of the fiduciary duty, but shareholder can become upset and take legal action any time they feel like management decisions are contrary to their best interest. This means that every decision made by the management team can come under scrutiny.
- Illegal actions: When shareholders believe that the business has engaged in fraudulent or other illegal activities, then they may feel that legal action is the only way to put such behaviors to a stop and protect their financial interests.
What can you do to address shareholder disputes?
Fortunately, there are steps that you can take to try to resolve these disputes when they come up. This may include:
- Proposing ideas for resolution that seek to avoid litigation at shareholder meetings
- Appointing a new disinterested director to try to steer the matter towards amicable resolution
- Engaging in mediation
- Navigating a shareholder buyout
- Filing a derivative claim against the bad actors who spurred the shareholder dispute
There are a lot of other ways to go about addressing a shareholder dispute. What’s important to remember is that you have options, and you have to know about them in order to choose those that best fit your circumstances.
Do you want to learn more?
If you want to know more about shareholder disputes and what you can do to avoid them and appropriately address them when they come up, then you might want to think about reaching out to an experienced business litigation firm that is experienced in handling these sorts of cases. By doing so, you might walk away feeling like you have a strong strategy in place to protect your business.