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4 reasons shareholder disputes happen

On Behalf of | Sep 20, 2023 | Business Litigation |

Shareholder disputes can be a complex and challenging issue for businesses operating in California.

These conflicts can arise for various reasons, often leading to disagreements among individuals who hold ownership stakes in a company.

1. Differences in vision and goals

One of the primary reasons behind shareholder disputes in California is a divergence in the vision and goals of the company. Shareholders may have varying ideas about the company’s direction, growth strategies, or long-term objectives. These disagreements can create tension and hinder the company’s progress.

2. Financial disputes

Financial matters often play a significant role in shareholder disputes. Issues related to dividend distribution, equity valuation, or profit allocation can trigger disagreements. Shareholders may believe they are not receiving their fair share of the financial benefits, leading to disputes that need resolution.

3. Breach of fiduciary duty

Shareholders expect that the company’s board and officers will act in the best interests of the business. When shareholders believe that those in control are not fulfilling their fiduciary duties, it can lead to disputes. These claims typically revolve around allegations of mismanagement, self-dealing, or conflicts of interest. Of the 205 federal securities class action cases filed in 2022, 33% involved allegations of misleading future performance.

4. Minority shareholder rights

Minority shareholders often find themselves in vulnerable positions, as they may have limited influence on the company’s decisions. Shareholder disputes can arise when minority shareholders believe their rights are being disregarded or when they feel excluded from important matters.

Understanding the common causes and implementing effective resolution strategies, such as mediation, clear agreements, and open communication, can help businesses navigate and overcome these challenges.