| Read Time: 4 minutes | Business Law
resolve shareholder disputes

Attracting stakeholders can be a great way to quickly and effectively grow a business and meet an uncaptured demand.

But having multiple shareholders involved also causes numerous complications.

Chief among them is when shareholder disputes arise.

With multiple people relying on the successful operations of the business, clashes of personality and differing views about how the company should move forward can spiral out of control.

It is essential to solve these shareholder disputes as quickly as possible and get the business back on the right track.

Lingering conflicts among shareholders can undermine the day-to-day operations of the business. They can also hurt the business’s reputation.

Fortunately, there are strategies to prevent these disputes. Further, a business shareholder disputes lawyer can help resolve them quickly when they can’t be avoided.  

Below, the Austin, Texas business lawyers at Massingill will go over the details of shareholder disputes in Texas and how to resolve them. 

If you have any questions, please contact us today.

Shareholder Rights

In Texas, shareholders in a company have statutory rights. The company’s bylaws or a shareholder agreement can also shape these rights.

Generally, the shareholder agreement will likely trump any statutory rights if the two conflict.

One common shareholder right in Texas is the right to vote on specific business issues. Usually, this right includes the ability to vote for the appointment of company directors.

However, a shareholder agreement can specify different share classes, so some shareholders have no voting power in the company.

Further, shareholders have the right to inspect the business’s books and records. To do this, the shareholder must hold shares for at least six months or hold at least 5% of the corporation.

If the shareholder satisfies this requirement, they must make a written request stating the purpose of the inspection.

Also, shareholders have the right to sue directors and officers of the company for wrongful acts. This type of action is called a derivative lawsuit.

The shareholder sues on behalf of the corporation, not themselves.

Shareholders can also have other rights, depending on the company bylaws and shareholder agreement.

A shareholder disputes attorney can help shareholders determine what rights they have.

Types of Shareholder Disputes

Shareholders can find themselves in disputes for a variety of reasons.

These disputes are often deeply contentious and can cast a shadow over the business’s day-to-day operations.

Common types of shareholder disputes include:

  • Shareholder agreement disputes,
  • Disagreements over the direction of the company,
  • Disagreements over management,
  • Minority shareholders feeling disrespected,
  • Minority shareholders believing their rights are being violated,
  • Breaches of fiduciary duties,
  • Conflicts of interest,
  • Worries about potentially illegal or fraudulent activities,
  • Breaches of contracts,
  • Disagreements over dividend distributions,
  • Misuse of business assets, and
  • Misallocation of profits.

These disputes can lead to high-stakes and even existential problems for the corporation.

The best way to solve these problems is to avoid conflicts in the first place. If that is not possible, quickly and effectively resolving the disputes is essential. 

Avoiding Shareholder Disputes

The primary interest of most shareholders is to see their business prosper. Shareholder disputes can severely detract from this shared goal.

For this reason, it is in everyone’s interest to avoid these disputes in the first place.

A well-written shareholder agreement that clearly delineates the rights and obligations of both majority and minority shareholders can be highly effective at heading off disputes before they happen.

The agreement should address common areas of contention, such as how directors are appointed, how distributional decisions will be made, and any restrictions on share transfers.

The shareholder agreement will let potential shareholders know the rules upfront. An experienced business formation attorney can help draft a rock-solid shareholder agreement.

Further, following best practices in corporate governance helps a corporation avoid shareholder disputes.

Many disputes arise when shareholders believe directors and executives are failing to fulfill their duties. Setting up solid governance procedures will help reduce these concerns.

Resolving Shareholder Disputes

No matter how well-prepared a corporation is, sometimes disputes are unavoidable. When these disputes arise, solving them quickly and effectively is essential.

The disagreements also must be resolved in a way that prevents future conflicts.

Quickly resolving shareholder disputes is easier when the company bylaws or shareholder agreement contains a predetermined dispute resolution mechanism.

The resolution mechanism should provide a way for shareholders to air their grievances and negotiate the outcome in the first instance.

If negotiations fail, an effective resolution process should involve mediation and arbitration before any litigation can be pursued.

Litigation can be extraordinarily costly and distracting. A business shareholder disputes lawyer can help a business create an effective dispute resolution process.

Further, seeking legal advice early can speed up the dispute resolution process significantly.

An experienced attorney will know how to resolve shareholder disputes and ensure their client’s rights are protected throughout the process.

Litigating Shareholder Disputes

Litigating shareholder disputes should be an option of last resort. Shareholder disputes law is complicated, and litigation involves many inherent risks.

That being said, sometimes litigation is necessary to enforce a shareholder’s or corporation’s rights.

Whether filing a derivative lawsuit on behalf of the company or a direct lawsuit on behalf of a shareholder—or defending against one—hiring an experienced attorney is critical.

How a Business Attorney at Massingill Can Help

Whether your business is trying to head off shareholder disputes before they happen or needs help resolving a current dispute, Massingill can help.

Our business attorneys excel at making the most complex legal issues simple. We pride ourselves on letting our clients focus on the bigger picture while we handle the critical details.

Massingill offers straightforward, flat-fee pricing and has experience in a broad range of business legal matters.

Contact Massingill today so we can handle your business’s legal needs.

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