Disputes within a company are a normal occurrence. Expectedly, not every member involved in a business will see eye-to-eye on every issue. Conflicts can arise from these situations, such as those stemming from management misconduct to personal and management disputes. If these disputes are not resolved in the right manner, a company’s profitability may be affected, potentially harming its shareholders.

This article will explain the rights of shareholders in the event of corporate disputes.

Shareholder Rights

At a minimum, shareholders’ primary rights include the right to vote in various company decisions, the right to receive dividends, and the right to receive the remaining property of a corporation after it is dissolved. The rights and protections provided to shareholders are outlined in a corporation’s shareholders’ agreement.

Ideally, a shareholders’ agreement will include the expected procedures for when a dispute arises within a company. When these disputes begin to incur financial costs upon the company, shareholders would otherwise be at a far greater risk. With procedures for these situations laid out, such as the relatively common resolution method of forced or voluntary buyouts, shareholder agreements can solve differences before they escalate to catastrophic levels.

Shareholders hold voting rights, meaning they can often choose to vote on various subjects regarding the operation of the company. This means that a corporation’s directors are beholden to the desires of shareholders and must govern the company accordingly. When a company’s directors or officers violate their duty of care to the best interests of a corporation, shareholders can arrange a special meeting to vote on a resolution for their removal. This mechanism can be used to mitigate the effects of managerial misconduct and protect shareholders from potential financial risks.

What if there is no shareholders’ agreement?

Since there are no requirements for a company to have a shareholders’ agreement implemented, there are some businesses that do not have one in place. This opens the corporation and its shareholders to several risks if a corporate dispute arises.

Shareholders’ agreements give clarity to the expectations and obligations of shareholders and corporations. Without this clarity, a dispute among shareholders can cause a variety of problems. For instance, shareholders may wish to leave if they sense that a dispute is escalating and without a solution. Without an agreement in place, there are no provisions in place to stop them from taking their shares with them. Even more, the departing shareholders may decide to exploit their insider knowledge of the corporation and set up in competition. These are risks to companies that could be mitigated with a shareholders’ agreement in place.

Minority shareholders are at great risk as well. Without a clear understanding of their rights as shareholders, such as the often-granted insight into the business’ performance, shareholders may find themselves lacking important information that pertains to them and their investment. As mentioned previously, disputes among a corporation’s management can escalate and cause the business to derail. Without a plan in place, shareholders may be left with a considerable financial burden and little explanation from those in charge.

Takeaway

Corporate disputes occur frequently and are to be expected. However, there are methods for companies to mitigate the legal and financial risks of these disputes. This article briefly explains the rights of shareholders, and what they might expect in the event of a corporate dispute. Additionally, it explores what one should expect if a business does not have a shareholders’ agreement in place.

To reduce the financial and legal risks of your business, contact a corporate lawyer at Guardian Legal Consultants today. We provide comprehensive legal consultation that will guide your unique interests and ensure that your business is protected.