Shareholder Disputes: Identifying and Understanding How to Handle Them
When first starting a business, leaders do not often find themselves spending too much time worrying about what might go wrong down the road. Worrying about future problems, and how to avoid them, is their lawyer’s job, right? While true that every possible future scenario cannot be predicted when a business is just being founded, it is important for a good leader to understand what disputes may look like, what leads to them, and how they can be overcome.
One common dispute that arises when a company has shareholders is the duties owed between the shareholder and the corporation. Breaches of these duties are often sources of much litigation, which turns into time and money spent that distracts the corporate leadership from focusing on the success of the business. Typically, this takes the shape of a breach of duty owed to a minority shareholder by the corporation and/or its majority shareholders. Essentially, in Florida the majority (or those holding power and control) owe a fiduciary duty to the minority shareholders to ensure that the rights of the minority shareholders are protected. This makes sense, since the minority shareholders would have little power, aside from enforcing the duty owed them, to keep the majority from negatively affecting their investment.
Protecting the Business
Most of the rights held by shareholders can be found in the shareholder’s agreement that is typically entered into at the time the initial investment is made. That is why it is so important for a company’s leadership to set up the agreement with future shareholder actions in mind. The shareholder agreement should contain information about the following: who can be a shareholder, how much the shares are worth, what to do if a shareholder wishes to leave or if a shareholder suffers a major life event (i.e. termination, retirement, bankruptcy, or death), and as mentioned above what rights the different types of shareholders have with regard to controlling decisions for the company.
By having a well drafted agreement at the earliest stage possible, company leaders will be able to foresee many of the most common types of shareholder disputes and handle them without the need for protracted litigation. This is especially true for fledgling companies that often have friends or family members as their initial shareholders. As with anything that involves humans, disagreements are bound to arise. However, when they do, a business that had a well written shareholder’s agreement in place will be in a better position than one that relied on the principles of friendship alone. It would be difficult for a minority shareholder who claims that he or she is not being treated properly by the majority/leadership to argue with a document that they agreed to at the beginning of the relationship.
The Boca Raton professionals at Padula Hodkin, PLLC have over 20 years of experience with business litigation in Florida. We can guide you and your company on a path to success, and help you protect your company well into the future. Call today and speak with one of our attorneys, who can answer your questions or provide representation, depending on your needs.