Your Business. Your Questions. Our Solutions.

3 common causes of shareholder disputes

On Behalf of | May 2, 2023 | BUSINESS & COMMERCIAL LAW - Business Litigation

Business growth is the goal of business owners. And things change when this happens, including allowing other parties to own a portion of the company’s stock. Shareholders benefit a company, even though they may not be involved in the day-to-day operations. They own the company, providing it with financial security. 

However, disputes may arise between you and your shareholders over time. Below are three factors that can contribute to this.

Payment of dividends 

An agreed share of the profits made by a company is usually paid out to shareholders, depending on how many shares each owns. These are dividend payments. You and your shareholders may disagree on this matter, particularly when one believes they are not being paid fairly. Thus, you should have a clear shareholder agreement that explains how dividends will be paid to avoid misunderstandings.

Voting rights

Your company will have majority and minority shareholders. The issue is, will they have equal voting rights? 

Shareholders take part in the decision-making of a company. They participate in the election of directors, the company’s direction and other corporate actions. Most companies vote annually in general meetings, but some do it a couple of times a year. 

It helps when all shareholders have equal voting rights. When minority shareholders feel like their opinions don’t matter, conflicts may arise. All shareholders should attend meetings and vote on an important matter. 

Shareholder contract

You and your shareholders will sign an agreement when they buy a company’s share. Both of you should observe the contract’s terms to avoid conflicts. Breaching the contract can lead to disputes, for example, a shareholder selling their shares contrary to the agreement.

It will be best to have a smooth relationship with your shareholders. However, you should be informed about potential disputes to prevent them. You should also get legal help to solve conflicts.