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Five common shareholder disputes and how best to resolve issues

Whether your business has a few shareholders or a couple thousand, disputes can occur. For people with a financial stake in a business, these arguments can be incredibly serious. Here are five common reasons disputes arise and how your company can best resolve these issues.

Disagreement over the direction of the company

Running a business means keeping your profits up and continuing growth. Deciding to change strategy can lead to disagreements among shareholders, particularly in family-run businesses. Large purchases, firing employees or relocating the business could also upset shareholders.

Shareholders that withhold financial information

Shareholders have a responsibility to be honest with each other about financial matters concerning the business. Majority shareholders should be transparent with minority shareholders. Shareholders must reveal any conflicts of interest or other pertinent financial information. Failure to do so can lead to issues.

Lack of respect for minority shareholders

A minority shareholder has less say in how the company is run. However, if minority shareholders are given no information or their opinions are routinely ignored, they can become upset. Minority shareholders may bring a lawsuit against a company, especially if the business is not paying them dividends or is using corporate funds questionably.

Differences in shareholder compensation

Employees shareholders should be compensated based on their experience and training. If your company is compensating employees unequally, this could raise conflict. Perhaps family members are receiving better pay, or maybe your employee feels pay is unequal to the contribution another employee is making. Whether real or perceived, this can start arguments.

Violation of the shareholder agreement

A shareholder could sell off their stock in a way that violates the shareholder agreement. A shareholder may go work for a rival company. What constitutes a violation depends on your company’s shareholder agreement. Anyone violating this agreement is likely to upset shareholders.

A company is not required to have a shareholder agreement in place. However, a good shareholder agreement is your strongest protection against disputes. Your shareholders can also reach an informal agreement that will govern shareholder policy going forward.

A shareholder agreement can include non-compete provisions, which prevent a departing shareholder from going to work for a competitor. It can include a buy-sell clause that requires a shareholder to sell their shares to current shareholders first. You can also include a way to remove shareholders who have participated in misconduct. A shareholder agreement may even have rules regarding dispute resolution.

Without any type of agreement, your shareholder dispute may wind up in courtroom. In this case, you will likely need experienced legal representation.

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