When a business is controlled by shareholders it sometimes occurs that the company dissolves or one or more people leave to start their own enterprise. When this happens numerous issues may arise that can end up in dispute amongst shareholders and may continue to damage a company drastically and in worst case scenarios, the company may cease altogether.
If a business has shareholders, it is usually those who are considered “majority” shareholders who make all the decisions that ensure business is conducted sensibly and continues to run smoothly. If at any time a shareholder of the company wishes to leave or when the company is not doing so well, disputes may occur amongst shareholders.
Different types of shareholder disputes
Any types of disputes that occur amongst shareholders can have detrimental effects to a company or business. Following are different types of disputes that occur amongst shareholders of a business.
~Breach of contract
Shareholders are often given contracts that ensure they meet their obligations in relation to the business. A contract will contain specific conditions set out upon commencement of becoming a shareholder that is signed by each party concerned. When any of these conditions in the contract are not met or fulfilled, a breach of contract dispute may occur.
~Breach of Fiduciary Duty
In relation to shareholders, a breach of fiduciary duty may occur when those responsible for acting in the best interest for the owners or other shareholders have failed.
~Employment Contract Disputes
Many guidelines will be set forth at the beginning that will include an Employment Contract. This may include information on how profit is shared amongst shareholders and other duties expected as a shareholder. If a shareholder has failed or has a problem with any part of their contract, a dispute may arise.
~Covenants not to Compete
A shareholder may one day wish to begin their own enterprise and wish to leave a company. If an employment contract includes a covenant not to compete, this means that the one leaving cannot begin a business similar to the one they’re leaving, as it will be in direct competition. Upon leaving a business they may also take many of the methods and functioning of that business to compete against it with their new enterprise. This could lead to a violation of personal information relating to the business such as customer lists, business methods that may be unique to design or manufacture or trade secrets of the industry.
~Rights have been violated
Disputes may occur when the rights of shareholders have been violated. Some rights that shareholders have are documentation to financial records, sharing of profit and some may have rights when deciding decisions. If one of the major shareholders has failed to respect the rights of other shareholders, issues may arise due to lack of trust and confidence.
~Intentional Interference
Intentional interference occurs when another business or party has willfully interfered in your business to cause harm to it and individuals within. This may include interference with a contract, employment or business, or possibly interference to property. A problem may also arise when a shareholder has conducted intentional interference to a competitor.
~Conflicting Objectives
We all differ in opinion and also in expertise and ideas. Shareholders may dispute decisions and directions in which they want a company to fulfil in the future.
Ensuring your agreements protect a shareholder’s rights
It is ideal in a business that prior to commencement of electing a shareholder that all agreements and contracts are clear and precise. If a shareholders rights, duties and functioning within a company are clearly set out from the beginning and understood, disputes may not arise in the future.
It’s important that legal council is obtained to ensure all possible methods of future dispute are outlined and understood by all current and future shareholders to avoid any possible disputes amongst shareholders. Disputes amongst the people who run the business can often lead to massive problems and sometimes the closure of the business.
An agreement should contain pertinent information such as duties and responsibilities, remuneration amounts, information pertaining to business relationship, buyout amounts and methods of transferring shares and mediation issues in case a conflict may arise. It should also contain information relevant as to when a shareholder may retire or may die. An agreement that sets out all the above will lessen the occurence of future conflicts that may arise.