Shareholder Disputes

Shareholder Disputes

Derivative claims cover lawsuits taken against individuals responsible for negatively impacting shareholders as a whole, but what protects minority shareholders from those who control a majority of the company? When a shareholder has been with a company long enough to see it evolve and shift its goals, disagreements are bound to emerge. Regardless of their stake in the company, shareholders have protected rights. Even if the company is not owned equally, minority shareholders should refer to the contracts and agreements that they signed when buying into the company. Such agreements regulate the expectations and rights of the shareholder and those of the business entity. Voting agreements are a common way for shareholders to get involved and voice their opinion on decisions regarding the future of the company.

When it is determined that legal action is the best option for minority shareholders, shareholders can file a complaint seeking involuntary dissolution of the company. This is possible if the combined number of shares is more than 1/3 that of the company; shares can come from an individual shareholder, or a group of shareholders. Grounds for involuntary dissolution include conflict between executives resulting in inaction, abandonment of the company, and shareholder deadlock. Majority shareholders have the right to offer to purchase the shares of those shareholders who are seeking the involuntary dissolution, which, if successful, would resolve the action and prevent the dissolution of the company.

Alternatively, companies can enter into voluntary dissolution. Under these circumstances, minority shareholders may fear losing their interests in the process. Under California law, a shareholder with at least 5 percent of the company share can petition the California superior court to step in and claim jurisdiction.

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