Many underlying reasons contribute to creating partner and shareholder disputes. It could be complicated financial problems, intricate legal issues, or sensitive personal matters. A combination of these three problems might also lead to shareholder disputes. Our attorneys have experience in handling the issues of a company, majority owners, or minority shareholders. We have deep knowledge about business law to represent you in a court of law and solve problems that impact your business and balance sheet unfavorably.
Our experience makes us aware that legal solutions must be blended harmoniously with practical business solutions to deliver the best results. A reliable business legal firm will never undermine the significance of this critical aspect, as neglecting it may lead to the closure of a business.
Our highly experienced professionals utilize that knowledge to study intricate business and financial problems. As a trustworthy business legal firm, we are committed to providing you with the best outcome to fulfill your business and personal goals.
Shareholder Disputes – Common Causes
There are a number of reasons that lead to shareholder disagreements and disputes. Our attorneys have a profound understanding of various disputes and fights which often lead to business deadlocks and closures. Here are the five most common shareholder disputes and their causes that make matters worse for companies:
Disagreements or disputes over strategic decisions
Shareholders or board members are responsible for making the strategic decisions that determine the growth of a business establishment. Disagreements are common among board members with vested interests, varying tastes, and different backgrounds. When it comes to defining and implementing new strategies, these differences will become more pronounced to create disputes.
Contribution and compensation
It doesn’t matter whether stockholders are employees or board members of a company; they are eligible for fair compensation based on their shares. A dispute is bound to happen when one party tries to gain an undue advantage while neglecting the rights of another one. When there are inconsistencies in distributing financial contributions or sweat equity, disputes occur between shareholders.
Shareholder agreement violation
Specific terms and conditions need to be followed by individuals and the company when purchasing shares. You can find these terms and conditions in the contract.
Violating the rights or mistreating small shareholders
People who own less than 50% of the equity in a company are often known as minority or small stockholders. The majority shareholders may mistreat them in many different ways. They ignore the fact that minority stockholders are well-protected by the law. The opinions of these people are not heard when making policy decisions and disbursing benefits. These situations often lead to disputes.
Responsibility of trust is the foundation of the relationship between shareholders. They must uphold this trust towards other owners, particularly minority shareholders. This ethical relationship of trust with one or more other parties is known as fiduciary rights. Violation of these rights and irresponsible actions by one or more shareholders will trigger disputes.
Learn About Critical Laws Associated With Shareholder Disputes
Even well-prepared contracts cannot eliminate the possibility of disputes. Respective laws are available to address these disagreements. The solutions may differ depending on the unique nature of each case. However, all disputes between shareholders come under the purview of the following laws:
Nature of the Company is Critical to the Dispute
Disputes and solutions between shareholders primarily rely on the ultimate decision-makers of the company. According to the law, each company is a different legal entity. So, the company is accountable to the owners. That is to say, directors or stockholders can institute legal proceedings against their own company for misconduct or wrongdoings.
Positions or Authority of Directors
The power and authority of each director in the company are well-defined by the Bylaws or Shareholder Agreement. When company directors go beyond their authority limitations, disputes occur. As a legally binding contract, the Bylaws or Shareholder Agreement make these directors accountable for their misdeeds in a court of law. They are entitled to function within the rules laid down within the contract.
Stockholders or Shareholders
Company directors represent stockholders. The ownership, authority, and power lie with the people who own the company stocks. Another provision available for a shareholder who owns a set defined percentage of stock in a company is to ask the board to convene a meeting of stockholders in emergency situations. This meeting has the power to dismiss a director and appoint a new one based on the majority opinion. The Bylaws or Shareholder Agreement define the authority of each organization to keep things organized.
Minority shareholders (who own less than 50% of the stock) do not qualify for the same powers as majority stockholders. They need to employ different powers when dealing with disputes. One example is personal claims or statutory rights. Minority shareholders have the legal right to check vital documents on request to get a clear idea about the violations.
Differences Between Common Stock and Preferred Stock
You can find different types of stocks in a company. Common stock is what most individuals look for. It permits the shareholder to gain a profit in part. When share prices increase, shareholders will make a profit. Further, dividend payments also add to the profit. Common stockholders have the voting right on general company issues. One example is the appointment of a new board of directors.
Another type of stock is known as preferred stock. What are the differences between common and preferred stocks? The first one is the payout of a predetermined dividend. This amount is not the same paid to the owners of common stocks. The payments of dividends for preferred stock are higher than common stock payments or bonds. The owners of preferred stocks do not have the right to vote on critical company matters. However, they can expect their investments to be settled before paying out to common shareholders on company liquidation.
Rectifying or Finding Solutions to Disputes
You might have received a fair idea about a few rules, regulations, and laws employed to resolve shareholder disputes. Several other options are also available to solve various issues between shareholders. The critical thing is to hire an experienced and trustworthy business lawyer who possesses the knowledge to guide you through complicated legal problems. Our skilled professionals will analyze each situation carefully before offering solutions that safeguard your business interests.
We have a team of qualified, licensed, and vastly experienced attorneys with a proven track record. These accomplished professionals will analyze your case with meticulous precision before providing the best advice on the legal options available. Our lawyers will develop a clear roadmap and work as your trusted companion to help you achieve your business objectives fast.
Please contact us today to learn more about our reliable and efficient business law solutions.