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Shareholder Disputes

Disputes with shareholders can arise for a variety of reasons, including mergers and acquisitions, challenges to corporate governance styles, and even admissions of fraud. Additional potential catalysts include:

  • Shareholders wishing to end the shareholder relationship.
  • A minority shareholder’s claim of fraud or illegal actions against controlling shareholders.
  • Disagreements over actions initiated by controlling shareholders.

When conflict arises in a shareholder relationship, it’s important that directors, shareholders and other interested parties work with attorneys who are experienced in corporate law.

Multiple Areas of Focus

Shareholder disputes can involve multiple laws and regulations spanning various federal and state agencies. The attorneys at Gertler Law Group use their expertise across many disciplines to address matters including:

  • Financial misbehavior, including theft of assets, breach of fiduciary duty, transactions of a fraudulent nature, paying for personal expenses with corporate funds, and others.
  • Business valuation, including value of physical assets such as machinery and real estate.
  • Contracts, including buy-sell and noncompete agreements.

Types of Shareholder Disputes

Shareholder disagreements can fall under several categories. So-called appraisal rights — governed by both case law and state statutes — of minority shareholders can be triggered by shareholders objecting to a variety of events, including sales of assets, mergers and share exchanges. Appraisal rights give minority shareholders the ability to express their opposition to corporate acts that they believe will negatively impact them.

Under minority oppression actions, minority shareholders who believe their rights have not been upheld can file for a dissolution of a corporation. These actions apply to behaviors by majority shareholders and directors that may be perceived as wasteful, unfair, unethical or illegal.

Shareholder disputes also can arise under the umbrella of valuation and can apply to a variety of transactions, including purchases and sales. In disputes involving valuation, several different standards may be used to assess value. A common measure is fair value — the share value just before a corporate action that a shareholder is disputing, less any increase or decrease to value that occurred due to anticipation of the coming action.

Mergers and Acquisitions

Mergers and acquisitions are among the most significant events that take place in the corporate realm, and they can have profound impacts for shareholders, directors, staff and customers. Laws dictate how mergers and acquisitions must be assessed, structured and put into effect, but legal questions can arise regarding the interpretation and implementation of the many applicable regulations and statutes.

Laws address the specifics of either a purchase of one company by another corporate entity or the integration of two companies into one new entity. Many legal disputes can arise in mergers as the result of two companies joining and only one remaining in existence.

Consolidations also can result in disputes, as companies combine to form a new entity, with neither of the constituent entities continuing to exist. In acquisitions, shareholders may object on a number of grounds, including when a takeover is considered hostile.

Challenges to Corporate Governance

When shareholders feel that their interests are not fairly represented, challenges to corporate governance can result. Disagreements over the rules and processes under which a company is controlled often culminate in legal action.

In 2002, focus on corporate governance increased with passage of the Sarbanes-Oxley Act, which was intended to repair the confidence of the public in markets and corporations following high-profile fraud and bankruptcy cases like WorldCom and Enron. More than a decade later, the concept of corporate governance has evolved to include not just profitability but also status as an environmentally aware, ethical, sound corporate citizen.

Disputes often arise when the actions of a corporation appear at odds with the company’s mission or guiding principles. Increasingly, shareholders demand accountability from directors and managers for maintaining business profitability as they continue to provide quality products and services using economically sustainable and humane methods.

Are You Involved in a Shareholder Dispute?

Shareholder disputes can involve multiple laws and regulations that span various federal and state agencies. If you’re currently in the midst of a shareholder dispute, it’s important to engage experienced legal counsel who can help guide you through the complexities of corporate law. To schedule a consultation with an attorney, please contact Gertler Law Group, LLC.