Understanding your rights as a shareholder is essential. Shareholder disputes can be costly and time-consuming, so knowing your options can help you navigate these challenging situations effectively.
A shareholder dispute occurs when one or more shareholders disagree with the management or direction of a company. These disputes can arise for various reasons, such as:
- Disagreements over company strategy: Shareholders may have different ideas about the company’s growth and direction, leading to conflicts.
- Perceived mismanagement: Shareholders may believe the company’s management is not acting in its or its shareholders’ best interests.
- Dividend disputes: Shareholders may disagree on whether dividends should be paid, the amount, or the timing of payments.
- Breach of fiduciary duties: Shareholders may believe that directors or officers have breached their fiduciary duties, such as loyalty or care.
- Minority shareholder oppression: Majority shareholders may unfairly prejudice the minority shareholders, such as excluding them from decision-making processes or diluting their shares.
Shareholder disputes can be incredibly disruptive to a company’s operations and result in costly legal battles if not resolved promptly and fairly.
Several options are available to shareholders in Pennsylvania for enforcing their rights in the event of a dispute.
A derivative claim allows a shareholder to bring a lawsuit against its directors or officers for alleged breaches of fiduciary duties, corporate waste, or other wrongdoings on behalf of the company. The shareholder must first demand that the company’s board address the issue, and if the board refuses, the shareholder can then proceed with the derivative claim. Any recovery in a derivative lawsuit goes to the company, not the individual shareholder.
Unfair Prejudice Claim
In Pennsylvania, minority shareholders have the right to bring an action for unfair prejudice if they believe that the activities of the majority shareholders or the company are unfairly prejudicial to their interests. This may include actions that affect the minority shareholder’s ability to influence company decisions or that result in a significant decrease in the value of their shares. Remedies for unfair prejudice claims may include an order to buy out the minority shareholder’s shares at a fair price or an injunction to prevent further prejudicial actions.
Breach of Contract
Shareholders may also have contractual rights that they can enforce during a dispute. These can arise from shareholders’ agreements, employment contracts, or other written agreements between the shareholders and the company. Shareholders can bring a breach of contract claim to seek damages or specific performance of the contractual terms.
In addition to the above, there may be other legal avenues available to shareholders, such as:
- Involuntary dissolution: Shareholders can petition for the involuntary dissolution of the company if they believe it is deadlocked or being mismanaged.
- Inspection rights: Shareholders have the right to inspect the company’s books and records, which can provide valuable information in the event of a dispute.
Resolving Disputes Through Mediation or Arbitration
Litigation can be time-consuming and expensive, so it is often in the best interests of all parties involved to explore alternative dispute resolution methods, such as mediation or arbitration. These processes can provide a more efficient and cost-effective means of resolving shareholder disputes.
Mediation involves a neutral third party who helps facilitate negotiations between the disputing parties to reach a mutually acceptable resolution. Mediation is generally non-binding, meaning the parties are not required to accept the mediator’s proposed resolution.
Arbitration, on the other hand, is a more formal process in which a neutral third party (or panel of arbitrators) hears the case and makes a binding decision. Arbitration can be faster and more cost-effective than litigation, but it limits the parties’ ability to appeal the decision.
To take advantage of these alternative dispute resolution methods, including mediation or arbitration clauses in your company’s governing documents or shareholder agreements, is essential.
Philadelphia Shareholder Dispute Lawyers at Sidney L. Gold & Associates, P.C. Can Protect Your Rights
If you are engaged in a shareholder dispute, it is essential to know your rights. To review your situation, speak with our Philadelphia shareholder dispute lawyers at Sidney L. Gold & Associates, P.C. today. Call us at 215-569-1999 or contact us online to schedule a free consultation. Located in Philadelphia and Pennsauken, New Jersey, we serve clients in South Jersey and Southeastern Pennsylvania, including Wilkes-Barre, Scranton, Northeast Philadelphia, Bucks County, Chester County, Delaware County, Lehigh County, and Montgomery County.