Mitigating the Effects of Shareholder Disputes

One of the most challenging times for a business is when there’s a dispute between co-owners, business partners or co-shareholders. Depending on the way the ownership structure was originally formed, these kinds of disputes can become heated, expensive and time consuming.

The disputes can be over a wide variety of topics. They might be over tactical issues around day-to-day operations, or they could be as large as the strategic direction of the company. Maybe one owner is ready to sell or retire, and the other wants to keep going in the business.

Ideally, when they’re forming the business, the owners would put agreements in place to make these cases go smoothly. But we don’t live in a perfect world and that isn’t always the case. I look at these types of disputes almost like business divorces, because they can be just as emotionally fraught as an actual divorce. Sometimes they actually do accompany a divorce when you have a married couple who are the owners.

Here are some types of litigation we see:

  • 50-50 deadlock. One is where the parties are 50-50 owners of the company, and they’re deadlocked. One person wants to take it in one direction, the other person wants to take it another direction. Or they have some sort of fundamental dispute about how the company is run, or how the money is being divided or something of that sort.
  • Majority-minority disputes. The second type of dispute is between a majority shareholder in a company and one or many minority shareholders. We have an unusual statute in Minnesota called a Minority Oppression Claim that provides minority shareholders much greater rights than other states. Majority shareholders have the big block, so they get to vote and implement policies. But minority shareholders, even if you’re only a 5 percent or 10 percent shareholder, have protections and rights.
  • Operational disputes. Another type of dispute I see is what I call “partners behaving badly.” You have one owner of a business who doesn’t like the way the other owner is operating, so they start trying to block each other out of important business matters, such as financial decisions. They can’t do that. Partners and shareholders owe each other fiduciary duties. They don’t have to be civil or like each other, but they do at least have to abide by certain, basic rules that allow for fair operation of the business.

It’s always better to try to resolve these disputes out of court if possible. But that doesn’t mean companies shouldn’t seek local counsel to help them with the process. It’s important for owners to have sound legal help when something has gone off the rails. There are all sorts of ways you can settle these things short of going to court, and that’s part of my job. Trying to get the parties to remove their emotions and get to a practical business solution is the best advocacy that I can bring for my clients. However, if the situation gets really entrenched and we have to go to court, I have vast experience litigating on behalf of my clients.

If when they form the business, owners come up with a practical, fair agreement that takes future possibilities into consideration, that removes a lot of the potential for disputes down the line. Helping co-owners come up with these kinds of agreements up front is one of the services I provide. The agreements can be quite creative and interesting, as long as they follow the law. For example, I had two partners with a 50-50 split who decided that, when they didn’t agree on business matters, they would take turns being the final decision-maker.

Whether owners are in the early stages of forming their business and need help drafting their agreement, or they’re having a dispute that can be resolved outside the courtroom, or they’ve exhausted all other routes and going to court is inevitable, I work with business owner clients to get the best resolution possible for their case.

Watch my video below for more information:

Forming a new business with multiple owners, or having a dispute with another owner in your business? We may be able to help. Call today for a free consultation.