Shareholder, Partner, and Member Disputes

In an ideal situation, businesses will never have disputes between or among their owners (or partners/ shareholders / members). Note that we use the terms “shareholders”, “partners”, and “members” interchangeably because, depending on the business structure, the owners can be shareholders (in a corporation), partners (in a partnership), or members (in a limited liability company). See our blog with an in-depth explanation of the different types of business entities.

Business owners often have disagreements about operational issues for the company such as:

  • Use of company funds for business purposes or personal expenses
  • Ability to compete with the company or own similar companies
  • The amount of money they have to contribute to the company
  • The amount and type of work that each owner is to perform
  • What happens if an owner no longer works for the company
  • The process for buying, selling, or transferring company interests

Breach of the Shareholder Agreement or Bylaws

Shareholder agreements cover the rights and detail the distribution of shares of investors. Conflicts arise when an investor violates this contract. A clear written contract may prevent these issues between the business owner and their investors. 

Breaching the contract is a legal matter. This is why hiring a business law attorney can help you resolve this issue. Your attorney can help you identify your legal options in such cases. 

In some cases, a business problem is caused by unfair treatment. A minority shareholder is often dismissed when making a crucial company decision. In Pennsylvania, minority shareholders are given protection by the law. This is to ensure that there are no discrepancies in treatment between them and a majority shareholder. These protections are even available by law, when there is no agreement in place. 

Misappropriation of Company Assets

Misusing company assets are legal matters than an owner should take seriously. Mishandling comes in several forms. An excellent example of this is using the company money or property for personal use. In some cases, abusing the reimbursement privileges is also considered a misuse. In some cases misuse is criminal and requires involving local law enforcement. 

Hiring a lawyer will help you identify an asset misuse. Out law firm’s business lawyers are experienced in tackling similar issues. We provide a careful investigation to shed light on company misuse issues. 

Disagreement over Company’s Direction

A business owner’s goal is to develop their business further. But, shareholders may not share these same views with the business owner. When that happens, conflicts may arise. These conflicts can worsen and will probably affect the interests of the shareholder. 

When creating a shareholder agreement, the author should include how the business owner sees the company’s future. This will ensure that potential investors share the same vision for the company’s growth. These interests of both parties should be met when creating an agreement. 

Breach of Fiduciary Duty 

Business directors have to act in the interest of the company and not for themselves. If a company  member acts out of their own interests, they risk breaching their fiduciary duty. Corporate members should observe that major company decisions should be based on the company’s goals. 

Creating a board resolution when making a significant company decision can avoid a breach of fiduciary duties. A resolution documents the decision of the company on specific issues. Misuse of a company asset is another example of breach of fiduciary duty. 

Conflict of Interest 

A conflict of interest happens when an individual member doesn’t share the same interest with the other members of the company. This is not an uncommon scenario in a big company. In some cases, the individual member may act out of their own interest violating their fiduciary duties. 

Conflict of interest can put the business’ trade secrets at risk. A business litigation lawyer can help in resolving issues surrounding conflicts of interest. They can review the member’s employment agreements. This will help in verifying if a member breached their duty because of the conflict. 

Executive Compensation

Executive compensations are also known as business leaders’ benefits. These leaders make crucial decisions for the company. This is why it’s essential to keep them motivated and satisfied. A leaders compensation could include salary, incentive, and insurance benefits. Issues could arise when these compensations are not met. At Kaminsky Law, we do our best to foresee conflicts even before they occur. 

We will negotiate and assess the employer’s agreement. This will ensure that our clients will meet the compensation they are promised. Employers should fulfill their duties to pay their employees properly. 

Buy-Out Agreements

Establishing a business with a partner or other family members is bound to encounter disputes. In some cases, when a co-owner decides to leave the company or retire from the business, the business may crumble. Setting up a buy-out agreement can prevent this from happening.

A buy-out agreement dictates what will happen when a co-owner or a shareholder leaves the company. Buy-out agreements should meet the interests of all the owners. Hiring a business lawyer can help you draft an effective buy-out agreement. 

A buy-out agreement should specify if the departing owner’s share is purchasable. They should also determine who can buy these shares. The contract should also specify the owner’s payment terms and interest ownership. 

Contact our Bucks County and Philadelphia Shareholder Disputes Attorneys for a Free Consultation

Throughout any disputes, the legal rights and interests of the parties involved can be significantly impacted. By conducting thorough analyses of corporate documents, contracts, and governing laws we work to protect our clients as best as we can by identifying potential issues and violations. Resolving these issues requires a comprehensive understanding of the law and a strategic approach to each individual aspect. We aim to get our client’s the best solutions through negotiation, mediation, or, if necessary, litigation.

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FAQS

A breach of fiduciary duty occurs when a person in a position of trust and responsibility, such as a trustee or corporate officer, acts against the best interests of those they are obligated to protect, typically resulting in financial harm or misconduct.

The duty of loyalty requires individuals in positions of trust, such as corporate officers or trustees, to act in the best interests of those they represent or serve, avoiding conflicts of interest and putting their beneficiaries’ needs before their own. 

In a private company, shareholders typically have rights to ownership and potential profit through dividends, a right to information about the company’s affairs, voting rights on certain matters, and the ability to sell their shares subject to any restrictions outlined in the company’s shareholder agreement. 

When your business partner is making decisions without your involvement, communicate your concerns openly, have a written copy of everything, and discuss the importance of collaborative decision-making. If necessary, seek mediation or legal advice to resolve any conflicts and protect your rights. 

The ability to remove a 50/50 business partner depends on the company’s legal structure and governing agreements. In some cases, you may negotiate a buyout, seek mediation, or pursue legal action if there are grounds for expulsion under applicable laws or partnerships. 

Dissolving a business partnership involves a formal process to end the partnership’s existence. It typically includes notifying relevant authorities, settling debts and obligations, dividing assets, and terminating contracts. The partners may need to sign dissolution documents and handle legal and financial matters. 

The ability of a minority shareholder to force a buyout depends on applicable laws and shareholder agreements. In some cases, minority shareholders may have rights to seek a buyout if their interests are unfairly prejudiced or if specific conditions are met. 

In a member-managed business, all owners (members) actively participate in decision-making and day-to-day operations. In a manager-managed business, members delegate management authority to appointed managers who handle operations, while the owners take on a more passive role, focusing on major decisions and strategic planning. 

Articles of Partnership address key aspects of a business, including partners’ identities, roles, contributions, profit-sharing arrangements, decision-making powers, dispute resolution procedures, and terms for admitting or withdrawing partners. They define the fundamental structure and guidelines for the partnership. 

Anton Kaminsky, Kaminsky Law's founding partner, is an aggressive and creative lawyer that takes a modern approach to business, personal injury, and employment litigation

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Kaminsky Law is a small business-oriented litigation Law firm licensed in Pennsylvania and New Jersey with cost-effective approach to lawsuits, settlements, and dispute resolution.