Shareholder Disputes
Shareholder Disputes
Team Lead
Corporate shareholders are entitled to certain legal rights, and they are also entitled to certain expectations. When one shareholder violates another shareholder’s rights, or when the corporation’s board or executive leadership team fails to meet shareholders’ reasonable expectations, this can – and often will – lead to contentious disputes and the potential for litigation.
Our firm represents public and private corporations and corporate shareholders in disputes and litigation nationwide. We provide representation for all types of shareholder disputes, from disagreements between co-owners of privately-held businesses to shareholder derivative claims filed against large, publicly-traded companies. Our attorneys are experienced litigators who have tried complex cases in federal jurisdictions across the country, and we also have an extensive track record of achieving favorable results for our clients without going to court.
While shareholder disputes can involve innumerable scenarios and an almost endless list of legal issues, most of these disputes fall into one of three categories. These are:
- Disputes among shareholders in private-held corporations,
- Minority-majority shareholders disputes, and
- Shareholder derivative litigation involving public and private companies.
Disputes between shareholders will often arise within closely-held businesses. When a company has a limited number of shareholders, over time, the likelihood of a contentious dispute is relatively high. These disputes can involve a broad range of issues; and, while the shareholder agreement will provide guidance in some cases, in others it will be necessary to look elsewhere to find a means of resolution. We represent owners of private corporations in all types of shareholder disputes, including those involving:
- Breach of fiduciary duty
- Breach of the shareholder agreement
- Conflict-of-interest transactions
- Usurping corporate business opportunities
- Misappropriation of corporate funds, IP, or other assets
- Management and control disputes
- Failure to meet corporate responsibilities
- Harming the corporation’s image or reputation
- Failure to make capital contributions
- Disagreements regarding dividends and distributions
If you have run into an issue with one of your company’s other shareholders, acting promptly is likely to provide for the most-efficient and least-disruptive resolution. If your co-owner has breached a fiduciary duty or misappropriated corporate assets, taking swift action could be essential to mitigating the damage to your company. Our attorneys will work with you to assess your situation and explore your options, and we will strategically pursue a result that protects you and your company to the greatest extent possible.
Disputes between minority and majority shareholders are relatively common as well; and, here too, there are a number of different issues that may need to be resolved. By their nature, these disputes typically involve claims filed by minority shareholders against majority shareholders, and these claims are typically based on allegations of some form of conflict of interest, mismanagement of the company, or minority shareholder oppression.
As counsel for minority shareholders, we work to clearly establish our clients’ rights under the terms of their shareholder agreement and applicable law, and we fight to ensure that their voices are heard. We pursue all available remedies on our clients’ behalf, and we take the necessary steps to mitigate the risk of similar issues arising in the future.
As counsel for majority shareholders, we forcefully assert our clients’ contractual and statutory rights, and we help them stand firm against unmerited attempts to challenge their discretion and authority. We litigate when necessary, but we are frequently able to achieve favorable outcomes through out-of-court settlement negotiations.
Shareholder derivative lawsuits involve claims filed by one or more corporate shareholders on behalf of the corporation. These claims typically target corporate executives and board members, although there are various other possible defendants in shareholder derivative litigation as well. We represent shareholders in pursuing derivative claims, and we also provide defense representation for executives, directors, and others accused of wrongdoing in shareholder derivative litigation.
As a derivative lawsuit filed on behalf of the corporation, a successful case results in remedies being awarded to the corporation—not the shareholders who pursue the derivative claim. While this can result in indirect benefits to shareholders (in the form of increased value of their shares), in many cases shareholders will find it necessary to pursue individual claims as well. If you are a shareholder in a public or private company and you have concerns about an issue that has caused the company financial harm, our attorneys can help you make an informed decision about what type(s) of claim(s) to pursue, and we can seek all appropriate remedies on your and/or the corporation’s behalf.
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When dealing with a shareholder dispute, the most-desirable outcome will depend heavily on the circumstances involved. This includes everything from the nature of the dispute and the parties involved to the specific factual and legal issues at hand. Generally speaking, it will be desirable to avoid litigation in most cases – and there are many alternatives available – however, it is important not to dismiss the possibility of litigation out of hand.
With this in mind, some examples of ways in which corporate shareholder disputes can be resolved include:
- Review and Apply the Shareholder Agreement – When facing any type of shareholder dispute, one of the first steps should be to review the corporation’s governing documents. In many cases, the terms of the shareholder agreement will dictate the outcome of a shareholder dispute, or at least provide substantial guidance for identifying a mutually-agreeable path forward.
- Settlement Negotiations – If all parties recognize the validity of the dispute and have an interest in avoiding litigation, then structured settlement negotiations will likely offer a viable solution for achieving a mutually-agreeable outcome.
- Adoption of a Formal Resolution – Based on the outcome of settlement negotiations between the parties, it may be possible for the corporation to adopt a formal resolution that addresses the issue(s) at hand and provides a solid foundation for the corporation’s ongoing operation.
- Appointment of Directors or Other Advisors – When shareholders are unable to come to terms but want to continue operating their business, one option that works in some cases is to appoint a director or other advisor whose role is to provide unbiased recommendations that reflect the best interests of the corporation.
- Removal of a Director or Other Advisor – In shareholder derivative litigation and certain other types of shareholder disputes, the removal of a director or other advisor may serve as a means to achieve a mutually-acceptable result for all parties involved.
- Removal of Offending Shareholders – Likewise, the removal of offending shareholders can often provide a just result, and in many cases the shareholder agreement will outline the specific means to do so. While seeking to remove a shareholder can lead to litigation in some cases, it will often make sense as a negotiated outcome as well.
- Exercise of Buyback or Buyout Rights – Exercising shareholders’ buyback and buyout rights will also prove to be an effective means of resolving shareholder disputes in many cases. If it makes sense for you to exit the company or acquire your co-owner’s shares, we can help you approach this strategically and prepare all of the necessary documentation to execute the transaction.
- Sale or Liquidation of the Company – Occasionally, selling or liquidating the company will prove to be the most practical solution to a shareholder dispute. If this is an option you want or need to consider, our attorneys can represent you with regard to your dispute and in all phases of the ensuing transaction.
- Alternative Dispute Resolution (ADR) – Mediation and arbitration can be extremely effective tools for resolving shareholder disputes. Whether the use of alternative dispute resolution (ADR) is mandated by the terms of your shareholder agreement or you choose to pursue ADR voluntarily, mediation and arbitration can provide structured forums for resolving shareholders’ disagreements without the need for trial litigation.
- Litigation Through Trial – If necessary, a shareholder dispute can be litigated through trial. At Oberheiden P.C. we have had significant success in all types of business litigation, and our senior attorneys are seasoned litigators who are highly experienced in all aspects of federal pre-trial and trial practice.
Ultimately, when dealing with a shareholder dispute, the key to achieving a positive outcome is to take a proactive and strategic approach that is driven by the specific circumstances involved. At Oberheiden P.C., we have the experience and insights you need to begin making informed decisions immediately, and we have the resources and capabilities required to achieve a favorable result through settlement negotiations, in ADR, or at trial.
If you need legal advice or representation for a shareholder dispute, we encourage you to contact us for more information. To speak with a senior business litigation attorney at Oberheiden P.C. in confidence, call us at 888-680-1745 or tell us how we can reach you online today.
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