Companies bring in shareholders when they need capital to start operations or when the company grows enough to Warrant the additional complexity of becoming a publicly traded organization. In either case, the shareholders who help financially support the company have certain rights and play a particular role in helping to guide the organization.
Unfortunately, shareholder disputes can disrupt a company’s culture and undermine major developments. What are some of the more common reasons shareholder disputes arise?
1. Disagreements about the company’s future
Sometimes, shareholders primarily want to maximize profits. That might mean they want to downsize operations and look to liquidate assets within the next decade. Other times, shareholders want to grow the company and expand into other industries.
Any major changes or plans at an organization can lead to opposition from some of the shareholders involved. The more even the division between those that support and oppose major company moves, the more likely that there will be challenges.
2. Buy-backs and freeze-outs
Nothing alienates and angers shareholders more than the prior sole owner or majority shareholders seeking to push them out after they made their investments. Some companies will try to forcibly buy out minority shareholders. Such conflicts lead to the sale of shares or even the removal of board members or management.
3. Contract violations
Shareholders often have documents detailing their rights, including the right to vote at shareholder meetings and the right to receive dividends based on the company’s performance. If the shareholders don’t get to have a say or don’t receive their compensation as agreed, that can lead to major conflicts.
4. Issues with organizational nepotism
Especially if a company was once a family-run business, bringing in shareholders can lead to issues with how the company operates. Those whose job performance, skills or education do not justify their title or current compensation could find themselves subject to scrutiny by shareholders. Claims of nepotism or mismanagement of business resources can anger existing management and alienate some shareholders from others, resulting in protracted power struggles.
Those considering investing in a company would do well to learn about its long-term plans and current culture. Those taking on shareholders need to be aware of the risks involved. Learning more about what causes many shareholder disputes could help your organization avoid a lengthy and disruptive situation.