Common Causes of Shareholder Disputes

Businesses with multiple shareholders can face internal tension, especially when expectations diverge.  While shareholders often share a common interest in the company’s success, disputes can and do arise and, if left unresolved, they may disrupt operations, affect morale, or lead to costly litigation.

Understanding the most common causes of shareholder disputes is key to addressing them early and mitigating risk.

Differences in Vision

It is common for shareholders to have concerns when they have differing visions or goals for the company. This can lead to disagreements over major decisions, such as investments and expansion plans. Shareholders need to communicate openly and honestly about their priorities and expectations. Business owners need to work to find common ground and compromise on critical issues.

Management and Leadership Issues

Shareholders may have disputes when they disagree with the competence or performance of the company’s management team. In many cases, they may not like the decisions made by key executives or be concerned about the company’s direction. When this happens, it is important to have honest conversations about concerns and expectations.

Unequal Shareholder Contributions

Disputes can occur when shareholders feel their contributions are not recognized or rewarded fairly. Tensions may arise if some shareholders believe they are putting in more effort than others, leading to feelings of resentment. To prevent this from happening, companies need to establish clear expectations for each shareholder’s roles and contributions from the outset. These should be documented in the shareholders’ agreement.

Power Struggles

Shareholder disputes may arise when there is a power struggle over control of the company. This typically happens when it is not clear who has authority over decision-making. It could also happen when shareholders with equal ownership want the final say on key decisions. This can be prevented by clarifying decision-making authority. The shareholders’ agreement should clearly define the decision-making authority. Ideally, it should include provisions about voting rights and the process for making significant business decisions.

Conflicts of Interest

Conflicts of interest can arise if shareholders are involved in multiple businesses or have personal relationships that could impact their decisions. Specific policies and procedures need to be in place to ensure transparency in decision-making processes. Shareholders should be honest and disclose any potential conflicts up front.

Shareholder disagreements can disrupt operations and threaten the health of your business. At Brown Dunning Walker Fein Drusch, our business law attorneys in Arkansas help closely held companies resolve disputes and strengthen governance practices. Whether you’re navigating a current conflict or proactively protecting your business, we’re ready to assist. Call (303) 329-3363 or contact us online to schedule a consultation.

Protect Your Business with Strategic Shareholder Guidance

Shareholder disputes are common, but with the proper legal guidance, they don’t have to derail your business.  Addressing tensions early—and having the right agreements in place—can help protect your company and preserve shareholder value.

The commercial and business law attorneys at Brown Dunning Walker Fein Drusch in Greenwood Village, CO, have deep experience advising closely held businesses on shareholder relations, corporate governance, and dispute resolution.  Whether you need help resolving an active dispute or want to prevent one from arising, we’re here to help. Schedule a consultation with our office today by calling (303) 329-3363 or contacting us online.