Shareholders may bring various legal claims against a corporation, including minority shareholder oppression claims, books-and-records demands, and breach-of-fiduciary-duty allegations. Such shareholder litigation can easily disrupt a Minnesota corporation’s operations and cost the company crucial time, money, and business reputation. As a result, when a corporation faces a shareholder dispute, the business’s finances and reputation may depend on its ability to resolve that dispute as quickly as possible.
Common Causes of Shareholder Disputes
Some of the most common kinds of shareholder disputes that Minnesota corporations face include:
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Disagreements over management decisions: Shareholders may bring claims due to disputes over the corporation’s strategic direction, the election of company leaders, expenditures, or the retention of profits.
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Breach of fiduciary duty claims: Directors, officers, and controlling shareholders may owe fiduciary duties to the corporation and to other shareholders, including the duties of good faith, fair dealing, and loyalty, which may give rise to allegations of self-dealing, conflicts of interest, or disloyalty.
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Shareholder oppression claims: Minority shareholders may argue that a majority or controlling shareholder, or a corporate board, has engaged in unlawful oppression, including freezing out minority shareholders from management decisions, refusing information requests, forcing buyouts, or denying dividends.
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Deadlocks: Closely held corporations can experience deadlocks between co-owners or factions of shareholders who cannot agree on voting decisions.
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Corporate valuation disputes: When a corporation or majority shareholder seeks to buy out other shareholders or when the corporation undergoes a merger or acquisition, shareholders may file claims to bring disputes over the company’s valuation, arguing that the corporation, majority shareholder, or buyers have offered less than fair market value for their shares.
Legal Framework for Minnesota Shareholder Disputes
Minnesota’s Business Corporation Act provides various statutory protections and remedies for shareholders. For example, the Act provides a mechanism for shareholders to request an inspection of the corporation’s books and records, typically as part of a shareholder’s investigation into mismanagement or wrongdoing by the company’s directors and officers. The law also allows shareholders to dissent and obtain payment of the fair market value of their shares in the event of specific transactions, such as:
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Amendments to governance documents that adversely affect the rights or preferences of the shareholders’ shares
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A sale or disposition of the company’s property that requires shareholder approval, a merger, an acquisition, or a conversion
The Act also allows courts to grant any other reasonable equitable relief to an aggrieved shareholder. In certain circumstances, such as a deadlock, shareholders can petition the Minnesota courts for an involuntary dissolution of the corporation.
Furthermore, for closely held corporations with a small group of shareholders, courts may impose fiduciary duties on all shareholders, especially majority or controlling shareholders, including duties of good faith, fair dealing, and loyalty.
Strategies for Resolving Minnesota Shareholder Disputes
A company facing a shareholder dispute can take the following steps to seek a positive resolution:
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Review the corporation’s governing documents, including the articles of incorporation, bylaws, shareholder agreements, and buy-sell agreements, which may provide contractual rights and remedies for shareholders or outline dispute resolution procedures.
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Pursue internal resolution of a shareholder’s dispute, including by holding board and shareholders’ meetings or conducting advisory votes to understand the position of all the shareholders.
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Consider mediation or other forms of alternative dispute resolution to reach a confidential resolution of a shareholder’s dispute and avoid negative publicity.
Finally, the company should contact a business litigation attorney as soon as possible. Not only can an attorney provide critical support throughout each of the following steps, but they can also protect the company at trial in the event that the dispute leads to litigation.
Contact a Corporate Law Attorney in Shakopee, Minnesota
Does your company need help resolving a potentially costly shareholder dispute? If so, contact Jaspers, Moriarty & Wetherille, P.A. today for a confidential consultation with a business litigation lawyer in Shakopee. We can listen to your concerns, advise you on your options, and help you pursue the favorable resolution you deserve.