Few companies have one sole owner. Instead, businesses tend to have multiple shareholders. The percentage of shares owned and voting rights can vary, but all shareholders have a joint interest in the business succeeding.
Nonetheless, shareholders don’t always agree. Shareholder disputes can be damaging both financially and reputationally. What are some of the most common causes of shareholder disputes?
Voting rights
As mentioned. Shareholders typically have different voting rights. These are usually based on percentages and daily involvement with the business. Disputes can occur when a shareholder feels that they don’t have a say in big decisions or they are being treated unfairly. It tends to be minority shareholders who feel pushed out in terms of the company making big decisions without them.
Disputes over the direction of the company
The aim of most companies is to significantly grow and expand. This is usually something that all shareholders want. Nonetheless, they may not agree on how the company goes about doing this. For example, a shareholder may have strong principles on environmental protection, while this may not be a top priority for other shareholders.
While minor disputes can occur, it is important that shareholders share the same ethos and long-term vision for the company.
Breach of fiduciary duties
Shareholders are fiduciaries. This means that they must act in the best interests of the company. A shareholder should not make decisions purely for personal profit (self-dealing). Shareholders must also avoid conflicts of interest. An example of this would be working closely with a direct competitor.
It’s important to settle shareholder disputes swiftly. Seeking legal guidance will help your business stay on the right track.