6 types of shareholder disputes

On Behalf of | Dec 4, 2023 | Firm News |

Shareholder disputes can disrupt the smooth functioning of a company, impacting its performance and stability. When a business has multiple people who own a share and have a stake in its success, there is a constant potential for conflict.

According to Gallup, 61% of American adults own small shares in at least one company. Owning stock in a company does not usually give you much control over the business, but people who own 5% or more of a business have a significant say over how the corporation functions. Recognizing potential disputes promptly is important for maintaining a healthy business environment.

1. Distribution of profits

One common cause of shareholder disputes revolves around the distribution of profits. Differing opinions on how to distribute earnings can strain relationships among shareholders. To resolve this, establish transparent profit-sharing mechanisms and ensure all shareholders have a clear understanding of how to distribute profits.

2. Decision-making authority

Disagreements over decision-making authority can lead to power struggles within a company. Clearly defined roles and responsibilities, along with open communication, can mitigate such conflicts. Establishing a structured decision-making process can also help prevent disputes and maintain a harmonious working environment.

3. Management style conflicts

Divergent management styles among shareholders can cause friction. Fostering an inclusive and collaborative culture that values diverse perspectives is important. Adopting a cohesive management approach through open conversation and team-building exercises helps promote a positive work culture.

4. Valuation of company shares

Valuing company shares often becomes a contentious issue. Valuation disputes often occur during buyouts or changes in ownership structure. Implement a fair and transparent valuation process to discourage disputes. Make sure the valuation reflects industry standards. Seeking input from independent experts can also provide an unbiased assessment.

5. Breach of shareholder agreements

When someone breaches a shareholders’ agreement, tensions escalate. Clearly drafted shareholder agreements, reviewed and understood by all parties, can prevent misunderstandings. Companies should open channels for discussing concerns to help address potential breaches before they escalate.

6. Succession planning

Issues related to succession planning can arise, especially in family-owned businesses. e a clear succession plan and involving all stakeholders in the process can prevent conflicts. Ensuring open communication about long-term goals and plans for leadership transitions is important for the sustained success of the company.

If you experience any of these disputes when you own a significant business share, knowing how to identify the issues may help you understand when to seek help.


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