HOW TO RESOLVE A MINORITY SHAREHOLDER DISPUTE IN CALIFORNIA
July 27, 2019
Both minority and majority shareholders are supposed to share one underlying goal — to protect the interests of the company they’ve invested in. However, they may not always see eye to eye on how to do that. Likewise, some stakeholders may lose sight of that goal altogether, act in self-interest, and leave the company vulnerable to legal and financial repercussions. These are just a few of the most common ways shareholder disputes tend to arise.
Whether you’re a minority shareholder who isn’t being heard, a majority shareholder who isn’t sure how to appease minority shareholders, or another stakeholder looking out for the best interest of your company, it’s important to secure sound legal guidance before taking action on your own. With more than 45 years of experience resolving business disputes in the San Francisco Bay Area, attorney David H. Schwartz is an invaluable resource to those in your situation.
Causes of Minority Shareholder Disputes
When a minority shareholder sees or suspects damaging, unethical behavior coming from a company’s majority shareholders, speaking up is not only appropriate but often quite necessary. For instance, if you’re a minority shareholder who suspects any of the following, what you do next could be vital to protecting your investment:
Failure to make needed resolutions
Failure to pursue legal claims
Breach of contract
If, on the other hand, you’re a majority shareholder who has been accused of such behavior, you should be just as invested in getting to the root of the issue and resolving matters — ideally, before a full-blown dispute even begins. Doing so quickly could prevent unnecessary conflict between stakeholders while also protecting your reputation and role within the company.
How to Resolve Minority Shareholder Disputes
When it comes to shareholder disputes, there’s no “one size fits all” solution. What it all boils down to is the root issue causing disagreement, what steps have already been taken to resolve the issue, and whether the matter is serious enough to escalate to formal legal action. Let’s review your options as they generally unfold chronologically.
Check Your Shareholder Agreement
Many shareholder disputes stem from minority shareholder oppression. That is, majority shareholders are illegally withholding information, excluding minority shareholders from certain decision-making processes, or otherwise ignoring the rights of their minority shareholders.
Whether you want to raise or respond to a complaint about minority shareholder oppression, a smart place to start is by checking your paperwork. Are majority shareholders in fact dismissing minority shareholder rights? Are they making business decisions without minority input when they shouldn’t be? If so, simply calling attention to that fact (and referencing your agreement) could put things back on track before more aggressive action ever becomes necessary.
Request Action from the Board of Directors
In most cases, you’ll need to give the company’s board of directors a chance to fix the problem before you can pursue other courses of action. For instance, if you suspect one board member of committing fraud, you could request that the rest of the board vote to have that member dismissed. Should they refuse your request, that means it’s time to explore other options.
File a Derivative Action
When you see harm being done to the company (whether caused by fraud, illegality, a breach of contract, or general inaction from the board) you can actually file an action on the company’s behalf. In law, this is known as filing a derivative action.
A lot goes into California’s derivative action process, but long story short, this could be the right avenue to pursue if you can’t count on your board of directors to solve the problem at hand. If you’re considering this option, you should start by discussing the process in further detail with an experienced business litigation attorney.
Take Additional Legal Action
Sometimes, regardless of how well you’ve done to take the right steps in the right way, resolving a minority shareholder dispute takes some additional legal muscle. When that happens, it’s best to enlist the counsel of a commercial litigation attorney with versatile experience. Specifically, your attorney should be prepared to represent you through any negotiations, litigation, and/or trial proceedings that may become necessary in your case.
In other words, your best chance at a fruitful and lasting resolution is to put an attorney on your side who knows how to handle both low- and high-conflict business disputes. In San Francisco, attorney David H. Schwartz is that legal professional.
San Francisco Minority Shareholder Dispute Attorney
Whether you’re a minority or majority shareholder involved in a dispute, one thing’s for certain: you want to overcome that dispute as quickly and painlessly as possible. To get the legal guidance you need, start by scheduling a consultation with attorney David H. Schwartz. With more than 45 years of experience and a vast knowledge of California business dispute law, Mr. Schwartz is committed to helping San Francisco Bay Area businesses and shareholders succeed.