What Are Shareholder Disputes?

In corporate governance, shareholder disputes stand as intricate challenges that can significantly impact the stability and success of a company. These disputes arise when individuals who hold ownership shares in a company find themselves in conflict, often due to differing perspectives on critical aspects of business operations. Whether the disagreement centers on strategic decisions, financial matters, or the distribution of profits, understanding the nature and resolution of shareholder disputes is essential for fostering a healthy and sustainable business environment. In this article, we delve into the fundamental question: What are shareholder disputes? Exploring the common triggers, legal implications, and resolution strategies, we aim to provide a comprehensive guide to navigating this complex terrain and safeguarding the interests of both the company and its shareholders.

Shareholder disputes can occur at any time within public companies that are incorporated and issue shares. They can be quite difficult to navigate.

In Canada, any person may incorporate a company if:

• They are over 18 years of age;
• They are of sound mind; and
• They are not bankrupt.

If you meet this criterion, you may incorporate a company by completing an “articles of incorporation” form and submitting it to the appropriate government ministry.

Once incorporated, a corporation has a legal entity independent of its owners and managers. This means that a corporation can carry on business, borrow or lend credit and can also sue or be sued.

What Is a Shareholder Dispute?

Shareholder Disputes: Who Runs A Corporation?

Regardless of the size of your corporation, there are some key positions that most corporations possess that have the potential to lead to  shareholder disputes:

• Officers: The officers manage the day-to-day operations of the corporation. As officers, they are able to assign some of their authority to their employees. The officers report to the Board of Directors.
• Directors: The directors oversee managing the business. They have the ability to pass resolutions at board meetings relating to any legal or business matter. Among other things, the directors can approve and pass resolutions relating to the approval of financial statements and approval of actions taken by the officers of the corporation.
• Shareholders: A shareholder is any person or entity that owns shares in a company’s stock. Shareholders receive ownership rights based on the percentage of ownership in corporate stock. All the resolutions have to be approved by the shareholders. Unlike directors, who have one vote each, shareholders have one vote for each voting share of the corporation they may hold.

What Are The Rights Of Shareholders?

To avoid shareholder disputes, it is important to understand the three basic rights of a shareholder. These rights include:

• The right to vote at shareholders’ meetings after receiving proper notice and documents.
• The right to attend a meeting of shareholders.
• The right to accurate and complete information about all the affairs of the corporation.

Shareholders may also enter into agreements with the corporation. Among other things, these agreements can cover:

• The method for valuing the shares of the corporation.
• The management positions and responsibilities of the shareholders.
• The method of adding or removing shareholders for misconduct, death or inability to function in the management of the business.
• Succession arrangements to spouses or the next generation.

Shareholder Disputes And Arbitration

Generally, shareholder disputes resolution clauses provide information that all disputes among shareholders are to be resolved by way of arbitration and not by the courts. Usually, the arbitration clauses may specify which jurisdiction and law will be applicable to their matter.

However, there are some instances where a dispute may not be referred to arbitration. In the event of a claim for oppression under the Business Corporations Act, a minority shareholder may be permitted to continue their lawsuit through the courts instead of arbitration.

Oppression Remedy In Shareholder Disputes

A minority shareholder is entitled to relief from oppression when their reasonable legitimate expectations from the majority shareholders are not met in shareholder disputes. For example, hiding or omitting information about the activities of the business from minority shareholders could be considered oppressive.

If a judge finds an act of oppression by the majority shareholder, the judge may make an order to remedy the situation. This can be done by deciding in the favour of the minority shareholder. Among other things, the Judge may order:

• To provide the appropriate dividends to the shareholders;
• Direct the majority shareholder to buy the oppressed shareholder’s shares; and/or
• Reinstate the oppressed shareholder to their former position in the business.

What Is A Derivative Action?

If the majority shareholder has improperly taken assets out of the corporation or acted on behalf of the corporation without authority in bad faith, the courts can authorize any shareholder to start and oversee a lawsuit in the corporation’s name against the majority shareholder who acted in bad faith.

Contact Achkar Law

If you are dealing with shareholder disputes within your company, our team of experienced shareholder dispute lawyers at Achkar Law can help.

Contact us by phone toll-free at 1 (800) 771-7882 or email us at [email protected] and we would be happy to assist.

Related Topics

• The Shareholder Agreement: Ontario’s Blueprint For Business Cooperation
• Shareholder Agreement: What Can You Do If A Shareholder Breaches?
• Shareholder Disputes: 3 Things You Should Know Before You Start Litigation