Shareholder Disputes Explained

In closely held corporations, shareholders play a vital role in making business decisions. However, individuals don’t always see eye to eye and disagreements about the direction of a company, its financial obligations, or the treatment of stakeholders are not uncommon.

Ideally, each person with a stake in the company will play by the rules and uphold their fiduciary duty; however, partnership and shareholder disputes can arise when shareholders breach agreements, attempt to squeeze out shareholders, withhold distributions, or improperly utilize assets. If you believe that your rights as a shareholder are being overlooked or abused, it is critical to understand the remedies available to you.

The Importance of Shareholder Agreements

A company’s shareholder agreement can provide strategies for dealing with conflicts and it is often the first place to turn when a dispute arises. The language in these agreements can regulate aspects including an individual’s rights, buyout procedures, and remedies for shareholder oppression. In a dispute, well-drafted agreements can protect the integrity of a business and the rights of its shareholders. However, when you mix changing business landscapes with financial interests, conflicts are likely to escalate. In order to uphold your rights, it may become necessary to get a skilled attorney involved.

Shareholder agreements can cover issues including:

  • The rights of majority and minority shareholders in making business decisions
  • The process for the removal or replacement of company officers
  • Developing non-disclosure and non-compete agreements
  • Options for the removal of potentially harmful shareholders
  • Methods for evaluating, preventing, and resolving shareholder disputes

Remedies for Minority Shareholders

Recently, it has become harder for minority shareholders to take legal action for oppression. In the case of Ritchie v. Rupe (2014), the Texas Supreme Court declined to recognize a common-law cause of action for minority shareholder oppression. Now, a court ordered buyout can only occur in extremely limited situations. However, despite the implications of Ritchie v. Rupe, shareholders who feel that they are being squeezed out, frozen out, abused, or otherwise oppressed still possess numerous legal rights and remedies.

Shareholder remedies for oppression include:

  • A court appointed rehabilitative receiver
  • Filing a breach of fiduciary duty claim
  • Obtaining an injunction
  • Filing for breach of contract

Are You Involved in a Shareholder Dispute? Call Us Today

If your rights as a minority or majority shareholder have been violated and you need to understand your legal options, it is time to get Hendershot Cowart P.C. involved. Whether through mediation, arbitration, or litigation, our legal team can help you find the most appropriate solutions to your dispute. We are dedicated to providing clients in all industries with only the highest levels of legal service.

To discuss your options with our Houston business law attorneys, call (713) 909-7323 or contact us online.


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