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Handling common types of shareholder disputes

On Behalf of | May 28, 2020 | Business Law |

Shareholder disputes can threaten the future of your company, especially when you only have a few partners with interest in the firm. Planning for these issues can mitigate conflict by providing pathways to resolution.

Explore strategies to handle these common shareholder disputes.

Management disagreements

Partners and shareholders may disagree about the future of the company, the direction of growth, or the nature of investments and purchases. An operating agreement with a clear procedure for major decisions and an established protocol for making these decisions is the map your company needs to move forward with minimal conflict.

Breach of contract

If either the shareholders or the company breach a legal agreement, the other party may pursue mediation or litigation. For example, minority shareholders may file suit against majority shareholders if they feel they do not have enough say in the decision-making process. Violating company bylaws is another common cause of disputes.

Fiduciary misconduct

This category includes the failure of a shareholder to declare a conflict of interest or be transparent about financial information. If these actions impact the business, the company and/or the other shareholders could have a legal claim. In addition, multiple partners could have liability if they fail to report mismanagement.

Succession planning

If you own all or part of a family business, the inheritance of the company can become contentious, especially when multiple branches of the family have a stake. Developing a clear succession plan for your business removes the potential for conflict from these decisions.

Compensation discrepancies

Shareholders may take issue with the salaries that top company executives earn. In other firms, partners argue among themselves about compensation issues. Memorializing the compensation structure in an operating agreement can limit the chance for a legal matter.

Sometimes, small businesses quickly grow into large businesses without addressing these issues. As you gain investors, shareholders and partners, develop comprehensive legal agreements that will guide the direction of your firm and keep operations as harmonious as possible.