4 Common Causes of Shareholder Disputes

Before beginning your business, you want to get everything in place so you can avoid future conflict and arguments. Ideally, you and your colleagues try your best to address all potential issues you may face in the future, and you mindfully create solutions and courses of action for what you think you might face.

That being said, problems will still inevitably arise. There will be disagreements and disputes. Here are four of the most common causes of shareholder disputes.

1. A Violation of the Shareholder Agreement

There are a number of ways the shareholder agreement can be violated. One of the most common violations is in the selling of shares. For example, many shareholder agreements have very specific rules about what needs to happen for a shareholder to be able to sell stock. Often, they have specific limitations on who is eligible to buy shares.

No matter the situation, if one of your shareholders has violated the shareholder agreement, remind the person of your company’s policy. Give the person the opportunity to rectify the situation and handle it according to the agreement. However, if the person refuses, contact your business lawyer immediately.

2. A Change in the Company’s Direction

When you and your business partners created your shareholder agreement, you were all probably on the same page about where your business should go. However, over time as companies grow and shareholders increase, the vision for the future might become a little less clear.

Shareholders often have different ideas about how the business should evolve and, as disagreements arise, this can be particularly troubling for any shareholders who were part of the creation of the company. In order to minimize conflict, have a clear policy in place regarding shareholder voting.

3. Disgruntled Minority Shareholders

One of the distinct disadvantages to being a minority shareholder is that you’re not entirely in control. This can mean that you might feel like decisions are being made without you. However, this is a very easy situation to fix.

To avoid this type of conflict, your shareholder agreement can include a voting clause to help balance power. You can allow each shareholder to have one vote, regardless of the number of owned shares. Furthermore, you can make it so that votes must pass by a certain percentage or be unanimous.

4. Generic Disagreements

Disagreements will arise. Perhaps some shareholders might be upset over company changes in personnel. Others might believe certain potential shareholders should not be allowed because of a conflict of interest. The reasons shareholders might disagree are almost endless but, by having a thorough and fair shareholder agreement in place, you can significantly reduce the number of conflicts.

Do You Need Help with Shareholder Disputes?

At Cove Law, our experienced business attorneys are here to answer your questions and address any concerns you may have. Whether your shareholders are upset or whether you want to create a new shareholder agreement for your business, we can help. Give us a call today at (954) 921-1121 or contact us online to learn more.

Written by Andrew Cove

Cove Law has significant experience defending federal investigations and formal actions by the Federal Trade Commission, the Consumer Finance Protection Board and the U.S. Department of Justice, as well as similar matters on the state level by the respective state Attorney General’s Offices and other local agencies.