A Business-First Approach To The Practice Of Law

Internal Disputes: Dealing with Disagreements Among Shareholders or Members

On Behalf of | Aug 30, 2019 | Business Law |

When a business has multiple owners, there is a persistent risk for internal disputes. Whether co-owners disagree over financial matters or the company’s trajectory, disputes aren’t necessarily a bad thing—they can often generate strategic and innovative ideas that no one owner would have had on his or her own. But animosity can lead to contentiousness, and contentiousness can lead to disruption. When a dispute is headed in the wrong direction, owners must take appropriate action to protect the company and themselves.

5 Common Causes of Contentious Shareholder and Member Disputes

While each company’s internal dynamics are unique, there are a number of general types of issues that tend to lead to contentious disputes among shareholders or members. Some of the most-common examples include:

1. Fundamental Disagreements Over Company Direction

Most company owners have strong opinions about what is in the company’s best interests moving forward. Fundamental disagreements over company direction – such as which markets to target or where to devote research and development (R&D) funds – can often lead to contentious disputes.

2. Majority-Minority Disputes

Disputes between majority and minority shareholders can often escalate as well. Typically, these disputes involve minority shareholders asserting that their interests are not being adequately represented.

3. Financial Disagreements and Disparities in Compensation

Unsurprisingly, financial matters are at the core of many shareholder and member disputes. This includes disagreements over issues such as budget management, debt and equity investments, and owner compensation.

4. Lack of Effort or Commitment

Disputes can also arise due to the perception that an owner is not pulling is or her own weight. If most of the company’s owners are working around the clock while one is showing a demonstrable lack of commitment, this can breed hostility – and potentially the desire to remove the underperforming shareholder or member.

5. Breach of Fiduciary Duties

Situations involving accusations that a shareholder or member has breached his or her fiduciary duty can breed substantial hostility; and, depending on the circumstances involved, the company may need to take prompt legal action in order to mitigate the harm caused.

Resolving Disputes Between Corporate Shareholders or LLC Members

When these and other disputes arise, company owners must make informed and strategic decisions about their desired outcomes and the best means to achieve them. In many cases, shareholder agreements and operating agreements will require use of alternative dispute resolution (ADR) procedures (i.e. mediation or arbitration) prior to resorting to litigation. Litigation may also be unnecessarily (and perhaps prohibitively) expensive; and, if the desire is to achieve an amicable resolution, working in good faith to reach an agreement may provide the best path forward.

Discuss Your Dispute with a Fort Lauderdale Business Attorney

The business dispute attorneys at Saavedra | Goodwin bring decades of experience to representing shareholders and members in negotiations, mediation, arbitration and litigation. If you need legal advice for an internal company dispute, we encourage you to call our Fort Lauderdale law offices at (954) 928-9568 or contact us online for a confidential consultation.

Founding Partners Damaso W. Saavedra and Allyson D. Goodwin