Shareholder Disputes

Claims by shareholders can be a nuisance, but they can also be serious threats to the business. They should be addressed quickly and properly.

Overview

Shareholder disputes come in many shapes and colors. Some shareholders are co-founders who are active participants in the business. Others are passive investors. Either way, directors and officers must balance their fiduciary duties with the right to use their business judgment in managing the business.

In general, directors and officers owe a duty to the shareholders put the corporation’s interests above their own, and to exercise reasonable care and consider all available information in making decisions. Unless there is bad faith, fraud, illegality or gross overreaching, courts will not interfere with directors’ exercise of business judgment.

It is important for corporate management to properly address shareholder complaints, even those that they consider to be a nuisance. Shareholders have certain rights to review books and records. Corporate formalities should be observed. A special committee of unconflicted directors might be needed to address conflicts of interest. Prevention can go a long way to avoiding legal action (or reducing its impact).

If a lawsuit becomes inevitable, management must litigate while at the same time continuing to fulfill its duties to the shareholders.

ASG Law can help navigate the legal and business complexities of shareholder disputes.