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Understanding Shareholder Disputes

April 29, 2021

Ownership and management of a business with fellow members, shareholders, or partners can be difficult. It is inevitable that conflicts arise between owners. Disputes may have a negative effect on the business and never more so than when the dispute is from within the company itself. A business dispute can disrupt the normal operations of your business. Despite the best of intentions at the beginning of a business relationship, things often change. During the course and scope of any business, disputes will arise that can affect operations and, ultimately, the bottom line.

Typically those conflicts are resolved by the members, shareholders, or partners among themselves. However, there are some disputes that involve matters integral to the operation or management of the business, or present irreconcilable differences between the members, shareholders, or partners. At times, like a marriage, the best thing for the business is a “business divorce.” And that is precisely what many disputes between business owners resemble. In those situations, the engagement of skilled business and commercial litigation counsel can help avoid expensive and protracted litigation, when possible, or can guide you through the litigation process.

Member, shareholder, or partner disputes can arise at any point in the life of a business, from formation to dissolution. A few examples of disputes which may require assistance to resolve or litigation include:

  • Interpretation of LLC Agreements, bylaws, partnership or shareholder agreements;

  • Member, shareholder, or partner contributions

  • The issuance of additional equity to new members, shareholders, or partners

  • Breach of fiduciary duty

  • Breach of statutory duties of members with management authority – duty of loyalty and care

  • Employment agreements, including non-competition agreements, non-solicitation agreements, and other restrictive covenants;

  • Confidentiality, non-disclosure, or trade secret agreements;

  • Severance or termination agreements for members, shareholders, partners, officers, or employees; and

  • Dissolution agreements.

But simply to deciding to split may be the easy decision. There are a myriad of other questions that need to be answered. How do the owners go their separate ways? What do the bylaws or LLC agreement require for the removal or departure of an owner? Which owner “keeps” the business? What is the value of the departing owner’s shares? How do you divide assets or liabilities? How are departing owners removed from any personal liabilities? Will the departing owner be asked to sign a non-compete or non-solicitation agreement?

Litigation is time-consuming and costly. For these reasons, litigation is rarely the best method of resolving differences within a business. As just one example, any documents filed in lawsuits are a matter of “public record,” meaning that those documents, and the company’s inner conflict, are available for public viewing and review. In place of litigation may be one of the various methods of alternative dispute resolution, such as arbitration or mediation. Or it may be just negotiations between members, shareholders or partners, or their counsel to resolve the dispute without litigation. But each of those options comes with expense and lost time.

When members, shareholders, or partners cannot find a negotiated or mediated settlement, they may have no option except to pursue litigation. When litigation a dispute between members, shareholders, or partners, you need counsel with a thoughtful, careful and measured approach combined with years of experience handling such disputes.

Whether your split is amicable or cutthroat, you need guidance in managing the departure effectively to maximize your return on investment and, if you are the purchaser, make certain the business can succeed moving forward.

John W. Clark IV has represented countless shareholders and members in splits and disputes regarding ownership. John can help you find a solution to your dispute that works for you. John has experience with various shareholder or member disputes, including:

  • Member (limited liability company) Litigation

  • Shareholder (corporation) Litigation

  • Shareholder Derivative Disputes and Litigation

  • Shareholder/Member purchase agreements

  • Shareholder/Member option exercises

  • Shareholder/Member departures and additions

  • Member breach of duty of loyalty and care litigation

For counsel experienced in the art of the “business breakup” in Birmingham, Alabama, across Alabama, or in the Florida panhandle, call Clark Law Firm PC.

Recent Matters or Cases

  • Assisted majority shareholders in the repurchase of stock of minority member

  • Assisted widow of a minority shareholder (founder) in maximizing recovery from the repurchase of her husband’s membership interest

  • Settled shareholder dispute for local HVAC company after terminating minority owner

  • Settled derivative complaint involving homeowners’ association members’ complaints related to the development of planned neighborhood

  • Negotiated the removal of a member for cause under LLC Agreement

  • Negotiated the buy-sell terms of a real estate holding LLC