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Shareholder disputes often happen for just 3 reasons

On Behalf of | Nov 18, 2020 | Business & Commercial Law

Like personal ones, business relationships occasionally have their problems. Furthermore, even in environments where everyone gets along, disputes may pop up out of seemingly nowhere. While having a good shareholder agreement may keep business disagreements in check, no organization can avoid disputes forever. 

Responsibly managing shareholder disputes is typically good for business. Knowing why they tend to spring up is the first step. While shareholders may disagree about virtually anything, many shareholder disputes happen for just three reasons. 

1. Violation of the shareholder agreement

Shareholder agreements are often far-reaching documents that define shareholder obligations, voting rights and other matters. If there is a clear violation of the agreement, shareholders may object. Likewise, if the agreement is ambiguous, there may be some dispute as to what constitutes a violation. 

2. Rights of minority shareholders

While it can be frustrating to be in the minority, minority shareholders often must respect the decisions of the majority. Most shareholder agreements, though, have detailed provisions that protect the rights of minority shareholders. If the majority does not respect these, shareholders may use grievance procedures to advocate for their interests. 

3. The direction of the organization

Finally, even if they do not have legal or transactional objections, shareholders may fundamentally disagree with the overall direction of the organization. After all, no two shareholders are likely to agree about everything. 

Shareholders who are unhappy with the direction a company is going may have some legal or other remedies. Fortunately, if it is comprehensive, the shareholder agreement probably has clear directions for quieting objections or otherwise settling disputes.