Not all companies begin operations as an LLC or partnership; many are set up as corporations with shares and shareholders. Ultimately, some of these companies go from closely- or privately-held to public companies by doing an IPO. Whether private or public, shareholders have certain rights that often need to be protected. Often, the person infringing on a shareholder’s rights is another shareholder. If you believe that your rights as a shareholder are being infringed upon by another shareholder or, even, the board of directors, you need to speak to an attorney that can help you navigate the murky waters of shareholder conflicts.
Exactly what types of things create shareholder conflicts?
- Disagreements as to the direction of the company;
- Differences in compensation;
- Someone’s breach of fiduciary duty;
- Majority shareholders not considering minority shareholder’s interests;
- Failure to keep shareholders up to date on financial matters;
- Breaches of the shareholder agreement; and
- Conflicts of interest or self-dealing.
Shareholder conflicts should be resolved as soon as practicable. If they are not, then operations of the company can be distracted, expensive litigation may ensue, or they can become more significant and destructive problems. Unresolved shareholder disputes can cost, millions of dollars and take years to litigate, only to see the company destroyed or file for bankruptcy.
The shareholder agreement may have specific rules for shareholder disputes to be resolved (e.g., arbitration, certain jurisdictions, bearing of costs) that you need to understand before the matter gets out of control, preferably before it is even signed. Contact Bailyn Law immediately. if you need a shareholder agreement reviewed or guidance concerning shareholder disputes and how to resolve them.