Protecting Both Business Finances And Futures

6 common causes of shareholder conflict

On Behalf of | May 13, 2024 | Business Litigation |

Shareholders provide vital financial support to businesses. Unfortunately, conflict among these investors could impact business operations, company morale and your bottom line. Understanding the reasons for conflict can help business leadership address or prevent issues.

Failure to uphold a shareholder agreement is a common cause of disputes.

Shareholders have a defined role in the company they invest in. Some may not uphold their duty to the company. In other cases, they may feel their rights were violated.

Companies must have a well-crafted agreement that clearly outlines shareholder rights and duties. This document can set their expectations. It can also provide the legal grounds for holding them responsible.

A lack of consensus can cause conflict.

When shareholders agree, a company’s path forward is clear. However, shareholders may have different visions for the company’s future. They may disagree on decisions made by management. They may debate product changes or potential mergers. This conflict could leave the direction of your company in question.

Poor communication can create problems.

Effective communication with shareholders builds trust. If shareholders feel they do not have the information they need about the company, distrust can fester.

Businesses should keep clear records of:

  • Meeting minutes
  • Business decisions
  • Financial details
  • Annual reports
  • Past messages to shareholders

Records and regular updates can provide the information necessary to prevent misunderstandings from becoming disputes.

Financial disputes can cause friction.

When shareholders invest in your company, they expect financial returns. Some may prefer to reinvest profits. Others may prefer immediate dividends. Disputes can arise when their expectations do not match the company’s policies.

Self-dealing can impact many parts of a business.

Board members and majority shareholders can have significant power in a company. This power allows them to guide the company toward future success.

Unfortunately, some use this power to benefit themselves instead of the company. They may give themselves excessive bonuses. They may fail to disclose their connection to other companies. This self-dealing can create conflict with other shareholders. It can also damage the company.

Personal conflicts can lead to professional challenges.

Business should be business. Unfortunately, ego clashes that have little to do with business operations may spill over into the boardroom.

Disputes are a reality in the business world. However, they do not have to interrupt your company’s progress. Recognizing common causes of disputes and seeking legal guidance can help you can address conflict before it endanger your company.



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