Disputes between a company’s officers, directors, or shareholders can significantly disrupt or impair a business’ ongoing operations. It is imperative that such disputes be resolved efficiently and effectively.
At the Law Offices of Steven J. Horn, experienced business attorneys are committed to resolving shareholder disputes in an expeditious and efficient manner. While our law firm prefers to resolve shareholder disputes through negotiation, our skilled trial attorneys can bring a successful resolution to shareholder cases in the courtroom as well, including the filing of derivative actions when necessary.
Avoiding Shareholder Disputes
Usually, when a business is first formed, its shareholders and partners are more concerned with getting the business started and generating profits than they are with making sure that the business is set up to avoid conflicts. Internal disputes can lead to a deadlock among the shareholders resulting in expensive and time-consuming litigation. Properly drafted shareholder agreements can frequently prevent disputes. Unfortunately, disputes among shareholders often occur no matter what precautions are taken. When they do, swift and decisive action should be taken to limit the impact to the company’s operations. Whenever possible, the dispute should be addressed through negotiation and mediation provided by an experienced attorney.
Shareholder Derivative Suits
A shareholder derivative suit is an action filed by an existing stockholder on behalf of the company against the officers, directors, or other shareholders of the company to recover damages suffered by the company. The shareholder brings the action in his or her own name but the claim actually belongs to the company. In a shareholder derivative suit, all shareholders benefit if a recovery is received by the company.
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When Should Derivative Suits be Filed?
Shareholder derivative suits are usually brought when a corporate officer or a shareholder has committed fraud, illegality, or abuse, or has failed to protect the company’s and the shareholders’ interests. Under California law, officers and directors of a corporation owe certain fiduciary duties to the company, including the following:
• a duty of care
• a duty of loyalty
• a duty to further corporate opportunities and avoid waste of assets
• a duty to avoid a potential conflict of interests
A shareholder or group of shareholders holding the majority of stock in a company usually has significant control over leadership and corporate decisions. These controlling shareholders also have a duty of loyalty to make sure their decisions are fair to minority investors. Majority shareholders have a duty to prove the legitimacy of their actions.
If a director, officer, or shareholder fails to meet any of these fiduciary duties, the shareholders have a right to intervene. Executive and shareholder disputes may arise from the following wrongdoing:
• breach of fiduciary duty
• breach of the covenant of good faith and fair dealing
• concealment or fraud
• malfeasance or illegal acts
Acts of Corporate Malfeasance
A breach of fiduciary duty may be in the nature of negligent or intentional acts of malfeasance. For example, if an officer or a shareholder commits fraud or steals from the company, the shareholders may by bring a derivative action and seek removal from office or money damages.
California Shareholder Dispute Attorney
Disputes between shareholders can lead to serious legal problems. Unless they are dealt with quickly, these disputes could bring about the demise of a company. If your company has an officer or another shareholder who has acted improperly and breached his or her fiduciary duty to the company, a derivative action may be necessary if the dispute cannot be settled out-of-court. At the Law Offices of Steven J. Horn, experienced business attorneys will help you solve your shareholder dispute problem so that you can focus on the operations of your business. Call Us For Free Consultation (818) 385-1050.