Shareholder and partnership disputes

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Owning and running a company can lead to great success and personal satisfaction in the best of times, but when it comes to shareholder and partnership disputes, things can get messy.

With so many people involved, disputes are bound to arise. How these disputes are resolved determines the future of a company, so their importance cannot be overstated.

Partnership Disputes

A partnership dispute arises when business partners have a disagreement about some aspect of how to run the company. Disputes can arise over differing management styles and business goals, contract breaches, conflicts over compensation, or disputes over asset division in a company.

Breach of Contract

Shareholders may be able to pursue a legal claim under breach of contract. This happens if a shareholder believes the company has failed to abide by the terms of its contract, by doing such things as misusing company funds, preventing a shareholder from receiving benefits to which they are entitled, or withholding money that a shareholder is due.

Minority Shareholder Oppression

Minority shareholder oppression occurs when majority shareholders make decisions that have a detrimental effect on a minority shareholder. This could involve actions like denying a minority shareholder money they are due, improperly terminating a minority shareholder’s employment or benefits, unfairly compensating majority shareholders at the expense of minority ones, or excluding minority shareholders from decision making. A freeze out or squeeze out is when majority shareholders take some action that attempts to force minority owners out of the company, and may be illegal.

These usually occur in privately held companies, because the minority shareholders cannot just sell off their stock to solve the problem. They are forced to negotiate with, or sue, the majority shareholders to reach a resolution. In Florida, minority shareholders are entitled to inspect the company’s books and obtain relevant information. Without this kind of material information, it can be difficult for a minority shareholder to protect their financial interests.

How to Resolve Disputes

Ideally, the two parties to a business dispute will be able to amicably come to an agreement which satisfies them both. This may be accomplished fairly easily for minor disputes, by negotiating directly. If this is unsuccessful or impossible, the parties may agree to “alternate dispute resolution”, which involves mediation or arbitration. In mediation, a third party will try to help the opposing sides negotiate and compromise until they reach a satisfactory resolution to the problem. An arbitrator is also a neutral third party, but will act as more of a judge, listening to both sides and making what he or she deems to be a fair resolution, without the focus on talking back and forth, negotiation and compromise.

As a last resort, or in the case of particularly contentious disputes, the opposing parties will choose to pursue litigation in an effort to resolve the dispute to their favor. In many cases, legal action proves to be unavoidable, as the two parties are at such odds with each other that no reasonable compromise can be achieved.

If a business dispute results in legal action, several outcomes are possible. A court may decide that a company must be dissolved or forced to pay dividends. A court may order one party to buy out the shares of the other. In Florida, minority shareholders who dissent from certain corporate actions have the right to divest from the company and receive fair compensation for their shares, but what exactly “fair value” means is controversial.

A competent Parikh Law, P.A. can help if you find yourself embroiled in a shareholder or partnership dispute and require experienced legal representation to protect your interests.