3 Common Causes of Shareholder Disputes

Shareholders, being the owners of a company, can have a profound influence on the company’s short-term performance and long-term growth. A good understanding among shareholders, as well as a spirit of cooperation, is essential in order to avoid any operational and financial problems.

Still, disagreements between the shareholders are a common occurrence in almost any company or business. The majority of such disagreements can – and should – be easily solved through dialogue and negotiation without any substantial ramifications for the company. At times, however, more serious legal or administrative problems may arise if shareholders get into a dispute over important matters. In this article, we will explore the most common causes that lead to shareholders disputes as well as some general advice on how to best solve them.

1. Breach of Fiduciary Duty

Fiduciary duty is a legal concept that obliges shareholders – whether they are employed in the company or not – to act in a way that will benefit the company, to put the shared interest of the company ahead of their own personal interest, and to treat other shareholders with honesty, decency, and respect. Withholding crucial financial and business information from other shareholders or engaging in deceit to further one’s own agenda can be considered a fiduciary misdeed and lead to disputes.

2. Breach of Shareholder Agreement

A shareholders’ agreement describes in the specific rights, duties, and obligations of the shareholders in greater detail. One of the most important provisions of such agreement relates to the pricing, purchasing, and selling of shares. Violating such provisions – for example, by selling some shares to an outside person or company in violation of the agreement – may lead to serious disputes and legal actions against a shareholder guilty of the breach.

3. Disagreements Between Minority and Majority Shareholders

Even though majority shareholders do have more authority to make decisions about a company’s direction and its future, they cannot completely ignore the rights and the opinions of minority shareholders. State laws in Texas regarding corporations provide certain protections to minority shareholders. For example, if minority shareholders are refused dividends or treated with unfair prejudice, they may bring a shareholder oppression lawsuit against the majority shareholders. Similar legal action can be taken if the majority shareholders engage in some kind of misconduct such as the misappropriation of funds.

What to Do in Case of a Shareholder Dispute

If a dispute arises among shareholders, amicable conflict resolution strategies such as negotiation or mediation are usually preferable. Opting for a solution that doesn’t involve litigation can usually help contain the damage that a dispute would otherwise do to the company’s value and performance.

However, in case of serious violations and misconduct on the part of one or more shareholders that have already greatly jeopardized the company, legal action may be the only effective solution. If you are now involved in a dispute with other shareholders in your company and are not sure what the best course of action would be in your case, contact Fraser, Wilson & Bryan, P.C. to schedule a consultation with one of our attorneys. We will closely analyze your situation and advise what measures can be taken to resolve the conflict with the least negative impact on your company.