The Most Common Causes Of Shareholder Disputes You Should Know As A Business Owner

If you own a business, you must be aware of the reasons behind shareholder disputes. Shareholders can be of different types, sizes, and shapes. They can be your Aunt who has shares in the private company that her family owns. They can also be someone who holds millions of shares at Apple. They can be anyone. Irrespective of the number of stocks that they have in their name, they can easily be a part of a shareholder dispute either with the other shareholders of the same company or even with the company owners. So what are the causes that they get involved in this? The following points might make things lucid.

What Is A Shareholder Dispute?

First and foremost, you must understand what a shareholder dispute actually is. If it has to be explained in simple terms, it happens to be a disagreement between the shareholders of a company regarding its governance or other issues like finance, operations, etc.

It’s a known fact all the shareholders in a corporation have a monetary stake in the business. Therefore, the tensions that brew between them are on a much larger scale than what you experience in cases of normal disputes in a business. Moreover, the reasons for such disputes might be more complex. Below are some common causes.

Breach Of The Agreement

Breaches in a shareholder agreement can have serious consequences. They happen when shareholders sell their shares to a rival, violating the agreement in the process. There are other cases when such breaches occur. When one shareholder decides to terminate the agreement ignoring what other shareholders want, it can be considered as a breach of a shareholder agreement.

Disagreements

Disagreements can be considered as a very common cause for shareholder disputes. This can be usually witnessed in family companies that don’t operate on a much larger scale. Any decision concerning the operation of the corporation or decisions to terminate the operations of the corporations can create a backlash among the shareholders.

There are a few other decisions that can cause disagreements like making large purchases without the knowledge of the other shareholders, moving the company to another location, terminating the services of employees who don’t own shares in the company, etc.

Fiduciary Deeds

There should be a level of trust between the shareholders, especially in private companies. They are all bound to each other with their fiduciary duties, irrespective of whether they are employees of the company or not. Transparency is what’s expected when shareholders deal with one another.

Without loyalty and honesty, a company can’t operate effectively. This becomes all the more true when majority shareholders deal with the minority shareholders. Disputes happen to owe to conflicts of interest between the shareholders or when crucial financial information is withheld by shareholders from the others.

No Respect For Minority Shareholders

Minority shareholders of a private company are usually at a disadvantageous position as they don’t have as many shares as the majority shareholders. The good news is that many states in America are doing their bit to look after the rights of these minority shareholders as they are often kept out of decisions taken by the management. As a minority shareholder, one can’t sell their shares to others. Consequently, their investment opportunities are limited.

Often, their investments are at the mercy of the majority shareholders who might not wish the best for them. Minority shareholders who are oppressed by the majority shareholders can file a case against the latter for not giving out the dividends or for situations when money is being taken out from corporate funds for personal or family expenditures. Additionally, it’s an offense if majority shareholders don’t allow the inspection of valuable documents or fail to maintain transparency.

In case of a dispute, shareholder-employees should get compensation. Otherwise, conflicts might crop up. The best strategy to ward off a shareholder dispute is to chalk out a well-drafted and concrete shareholder agreement at the inception. This will help in easing out things to an extent in the long run. If you want a proper shareholder agreement or need suggestions or guidance in case of a current shareholder dispute, you can definitely come into contact with arbitrators who would give the exact advice you need.