Shareholders are individuals or entities that own shares in a company. These shares give them certain rights, such as voting on company matters and receiving a share of the profits. While shareholders often work toward a common goal, disagreements can arise over how the business should be run.
These fallouts may stem from differences in vision, financial decisions or concerns about transparency and control. In closely held companies or family businesses, personal relationships can also fuel the conflict.
Left unresolved, disputes can harm the business’s reputation, slow decision-making and even lead to financial losses. Here are some potential legal remedies when shareholder relationships break down.
Internal negotiations
Before heading to court, shareholders can try resolving their dispute internally. Internal dispute resolution methods often allow parties to reach a mutual agreement with the help of a neutral third party, such as an arbitrator.
Buy-sell agreements
Some companies have buy-sell agreements in place. These allow one shareholder to buy out another’s shares under certain conditions. If the parties can’t agree, the agreement may outline a formula for valuing the shares and specify steps to complete the sale. This can help remove a disruptive shareholder and restore balance to the company.
Court intervention
If a dispute cannot be resolved internally, the parties may turn to the courts. Legal remedies can include forcing the company to buy back a shareholder’s shares, dissolving the business or removing a director for misconduct. Courts may also order an accounting or investigation into company operations if there’s evidence of wrongdoing.
When handled properly, shareholder disputes don’t have to mean the end of the business. Seeking legal guidance can help protect the company and its future.