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Posted on September 20, 2018

4 Common Shareholder Disputes and How to Avoid Them

Do you own shares in a company? Are you thinking about buying shares in a company? Shareholders can be two or more partners or thousands of individuals investing in the company’s health. While the rewards of being a shareholder can be many, the risks are certainly something to be wary of. Shareholder disputes are one such risk—they are legal liabilities that you should consider carefully and understand before buying in.

These disputes occur most frequently when the company’s shareholder agreement is not written well or non-existent. A well-drafted shareholder agreement is the key to avoiding or resolving these disputes as they come up. Some common causes of shareholder disputes are:

  1. A breach of fiduciary duty. Whether it’s another shareholder or an executive in the company, their highest loyalty should be for the company’s good. It is their legal duty, so if they are not fulfilling their fiduciary duty to the company, they are liable under the law. If any one shareholder is acting in their own best interests or against the company’s best interests, shareholder disputes can arise.
  2. A breach in the shareholder agreement. An example of a breach would be if a shareholder tried to sell their share in the company to an unapproved party without the knowledge or approval of the other shareholders. Make sure that you consult a tried and true New York business attorney to either draft a stronger shareholder agreement or to prevent an issue from dissolving into a larger legal conflict.
  3. Minority shareholders being excluded. Majority shareholders, by virtue of their ownership of more shares, have more say in the direction a company takes. Sometimes these decisions do not take into account the interests of the minority. If this is the case, minority shareholders can bring a dispute against the majority.
  4. Shareholders have the right to the latest updated financial information. If financial information is being withheld, shareholders have the right to bring a dispute against the withholding party.

We Are Here to Help.

We’ve seen this situation arise time and time again. When a company is first founded, the founders can be giddy (perhaps even blind) with excitement for what the future holds. They often do not think about the liabilities and the problems that could arise further down the road—what happens if one partner dies, decides to sell their share, or retire early? What happens if an officer of the company breaches their fiduciary duties? How will the big decisions be made?

While this is understandable (in some cases, inevitable), we are here to make sure that doesn’t happen or the legal effects are mitigated. The Law Office of Richard Roman Shum can help you draft a solid shareholder agreement, or see you through litigating a shareholder dispute. Whether you are bringing the dispute or defending against one, let us handle it. If you’d like to set up a free consultation, contact us here or call (646) 259-3416 today!

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