Resolving Shareholder Disputes

Corporate Control Issues

Shareholder disputes can quickly escalate and may threaten the very existence of a corporation. This is why it is crucial to consult with an experienced attorney who can analyze the original shareholders' agreement to determine whether any wrongdoing has occurred. However, many agreements involve multiple layers of relationships, detailed contracts, and other legal issues. Many agreements may leave some matters unclear or perhaps unaddressed altogether, making the advice of a skilled lawyer all the more important.

Whether your shareholder dispute is a simple dispute regarding the agreement or is complex and might require business litigation, Matthews Law Firm can help you consider all the legal options available to you, including alternative dispute resolution (ADR), mediation, or arbitration.

Common Shareholder Quarrels

It is an unfortunate fact that it can often become contentious for people to work together, and disputes may occur. Between shareholders, there are several possible issues that may arise, including:

• Shareholder disputes against the corporation's owners or managers
• Accusations a shareholder has breached their fiduciary duty and is self-dealing rather than acting in the best interests of the company
• Issues pertaining to the rights of minority shareholders
• Conflict regarding buyout agreements, executive compensation, shareholder appraisal rights, and corporate deadlock disputes

Understanding Shareholder Rights

A shareholder, often referred to as a stockholder, is someone who legally owns one or more shares of a public or private corporation's stock. Shareholders own the stock, but do not own the corporation itself. Depending on the type of stock, shareholders are given special privileges, which may include:

• The right to sell their share(s)
• The right to remaining assets after a liquidation, if applicable
• The right to purchase new shares issued by the corporation
• The right to propose shareholder resolutions, which typically deal with corporate governance, issues of compensation, or social responsibility issues
• The right to nominate and vote on the director
• The right to dividends paid by the corporation, which is the portion of profit paid to shareholders

The Benefits of a Shareholders' Agreement

A shareholders' agreement, often referred to as a stockholders' agreement, is an agreement that is made between a company's shareholders. It is recommended that most corporations, particularly smaller ones, implement a shareholders' agreement to help provide guidance for common corporate issues. Obviously, shareholders' agreements vary greatly between different commercial fields. Typically, however, a shareholders' agreement regulates the following matters:

• Voting rights of shareholders
• Standards of buy-sell agreements, such as what occurs in the event a shareholder is no longer an employee or what occurs in the event a shareholder wishes to leave the corporation or retires
• Standards for expense reimbursements
• Salaries of shareholders who are also employees of the corporation
• Restrictions on transferring shares
• Provisions for dispute resolution
• Enforcement of minority shareholders' rights
• Other relationship standards that will exist between shareholders in relation to the corporation

Shareholders' agreements will also set standards for the initial contribution of shareholders to the company, as well as allocate key roles and responsibilities of the shareholders. If a shareholder dispute arises, the shareholders' agreement is the starting point to determine whether any wrongdoing has occurred or a shareholder's rights have been violated.