Types of Shareholder Disputes in Business
Licensed to practice law in Michigan and Illinois, Darren Malek possesses vast experience in business law. Counseling clients with publicly and privately owned practices, Darren Malek has litigated numerous business cases, including shareholder disputes.
In closely held businesses, shareholder, member and partner conflicts always exist and full-blown disputes are potential risks. There are three basic types of shareholder and partner disputes: minority oppression actions, dissenting shareholder actions, and “other” matters. Minority oppression actions involve the mistreatment of minority shareholders by terminating their position, withholding dividend payment, or usurping corporate opportunities, among other illegal or unfair dealings. To curb the practice of oppression, a large number of states have adopted a regulation that allows the minority owner’s shares to be bought by other investors at a reasonable cost, or “fair value.”
Dissenting shareholder actions arise when a sale of assets, exchange of shares, or company merger takes place. Protecting the minority shareholder, appraisal rights allow shareholders the opportunity to decline a major action that will have an adverse effect on their investment in the company. As a result, minority shareholders may dispute the value of their share.
“Other” matters involve the transaction of company stock, such as when a sale or purchase is made, an operating agreement is executed, or a shareholder or partner joins or leaves the company. These matters require valuation of assets to fairly and legally allocate shares.