A Business-First Approach To The Practice Of Law

3 mistakes that can damage your shareholders’ trust

On Behalf of | Oct 3, 2022 | Business Law |

A positive relationship with your shareholders is essential for a successful business. Like every relationship, it must be built on mutual trust, respect and responsibility.

Avoid these common mistakes that can lead to disputes and distrust among your shareholders.

Drafting a vague shareholder agreement

You and your shareholders might have very different visions for your company. If your shareholder agreement is vague or incomplete, it can lead to misunderstandings and disputes. Setting clear expectations from the outset can avoid many problems.

Making irresponsible business decisions

Your company’s board of directors has a fiduciary duty of care toward shareholders. This includes performing due diligence before entering into a business venture, hiring employees or training staff.

Although shareholder approval is not a legal requirement for normal business operations, you still have a responsibility to act in the best interest of your company. Making business decisions without proper consideration, hiring unqualified employees or failing to provide proper training can lead to myriad issues, from inefficient operations to legal liabilities.

Keeping shareholders in the dark

Your shareholders have a right to remain informed about your business operations. A lack of transparency can leave your shareholders feeling uneasy. Shareholders have the right to view business records, such as financial documents and board meeting minutes. It is important to keep these records organized and available. If you are unable to produce them when asked, shareholders may suspect that you have something to hide.

By avoiding these mistakes, you can reduce the risk of a costly shareholder dispute.

Founding Partners Damaso W. Saavedra and Allyson D. Goodwin