McKown Bailey

Where Others See Obstacles, We See Opportunities

  1. Home
  2.  → 
  3. Firm News
  4.  → Can a business survive an ownership dispute?

Can a business survive an ownership dispute?

Ownership groups and shareholders have immense power over a company, and when a company is profitable, most would feel there is little reason to argue. This could not be further from the truth, as there are many reasons that shareholders can come into conflict. However, in most cases, a shareholder dispute does not spell the end of a company but may cause a lot of turbulence.

What are the most common disputes between shareholders?

Common shareholder disputes can be boiled down to a few crucial factors. These factors are

  • Breaches: Shareholders have certain duties to each other, including the fiduciary duty to act in each other’s best interests and perhaps other duties laid out in the terms of the shareholder agreement.
  • Direction: The owners of a company obviously want a say in how that company does business. However, an ownership group is an uneven democracy, and the tensions of one majority shareholder bucking the wishes of the rest of the group can magnify disagreements.
  • Compensation: One primary shareholder agreement is often around how or when shareholders receive dividends or other compensation. If some ownership members perceive those terms as unfair, they may take action.

Essentially, ownership groups have a delicate balance to maintain while continuing the company’s business. Disputes of this variety can go through multiple stages of negotiation, arbitration and litigation as the various parties push back and forth and can be extremely costly.

What is the long-term outlook for such a dispute?

The business itself will likely survive. These cases are frequently civil matters between individuals. This means, at least from a cost perspective, the business is in the clear.

When shareholders, owners, CEOs and others come into conflict, it creates a lot of chaos for a company. When those disputes end up in a courtroom, the ultimate direction of the business depends on the strength of the disputing parties’ evidence.