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When you become a shareholder in a business, you are an owner. You may be a passive investor or have a say in the management of the enterprise.

Regardless, when internal corporate problems begin to manifest and result in harm to the company and/or the interests of the shareholders you need to pay attention; it’s your financial interest at stake. Harm can result from bad management, corporate wrongdoing, self-interested transactions, mistreatment of minority shareholders, accounting issues, or even excessive executive compensation.  Whatever the underlying cause of shareholder dissatisfaction, if the issue cannot be quickly and successfully resolved in the ordinary course, litigation may be your only option.

If you own shares in a corporate enterprise or invested capital in a business but face problems with unresponsive, negligent, or self-interested management acting for its own benefit, you may benefit from speaking with a Philadelphia shareholder disputes lawyer. The seasoned attorneys at the Jacobs Law Group are prepared to give advice tailored to your situation.

Types of Shareholder Disputes

Some common shareholder disputes include claims related to:

  • Conflicts of interest and self-interested related party transactions
  • Breaches of fiduciary duties and securities laws
  • Corporate Governance
  • Change-in-control transactions and share prices
  • Director and executive compensation
  • Squeeze Outs and freeze outs
  • Majority oppressing the minority
  • Governmental action and investigations
  • Proxy contests
  • Mergers and spin-offs
  • Internal investigations
  • Criminal activities, such as embezzlement, by majority shareholders who are officers or directors
  • Takeover defenses designed solely to perpetuate management
  • Squeezing out a minority shareholder in a close corporation
  • Terminating minority shareholders’ employment

Laws Governing Business Shareholder Disputes

Pennsylvania law has rules that can be enforced in court if necessary. Before resorting to litigation in Philadelphia court, our lawyers could work with shareholders to solve problems consistent with these laws.

For instance, Pennsylvania’s Business Corporation Law 15 PA C.S.A. §1571 gives rights to shareholders who dissent when a private company is engaged in certain actions, such as a merger, acquisition, or change in voting rights. Shareholders who disagree with the share value in a transaction can invoke their appraisal rights and be bought out at a fair price. If the shareholder and company cannot agree on a fair price, the courts will intercede and set one. If the company goes through with the deal, the dissenting shareholder can collect the fair value of the stock.

Rules attach to how a dissenter proceeds, such as submitting a proper written demand before voting on the action. These rules protect minority shareholders from being railroaded by majority shareholders. Shareholders should consult a skilled attorney at our Philadelphia office to discuss impending changes to the companies they have invested in.

Other state laws can also apply in these corporate securities matters, including Delaware and New York. We have experience with applying both Federal and multiple states’ securities laws.

Shareholder Lawsuits: Direct or Derivative

If negotiations to resolve shareholder disputes break down, and litigation is the only answer, shareholders can file direct or derivative lawsuits. Direct lawsuits are based on the individual harm to a shareholder caused by the Company’s failure to abide by its obligations under the law. Direct lawsuits also can be brought by minority shareholders over issues such as hiring, firing, and withholding of dividends and other direct injury.

Derivative lawsuits are brought by shareholders on behalf of the corporation seeking damages to recompense the company for injury caused to it. Any monetary awards are issued to the corporation, which differs from a direct lawsuit in which shareholders are awarded compensation. Derivative suits are based on bad acts by management that harm the company, such as fraudulent transactions, breach of fiduciary duties to the company, conflict of interest, usurpation of corporate opportunities, etc.

Examples of Derivative and Direct Lawsuits

Minority shareholders representing the company against majority holders who scheme to sell the company for a low stock price involving kickbacks to the majority holders would bring a derivative lawsuit.

A minority shareholder squeezed out of the company with his/her shares redeemed at a price less than the market value of his/her shares could bring a direct shareholder suit for damages.

Because litigation involving shareholders and entities is complex, those involved should consult an experienced attorney at our firm who is familiar with handling these types of disputes.

Reach Out to a Shareholder Disputes Attorney at Our Philadelphia Firm

If you are a shareholder, you own a stake in a business and have a vested interest in its success. If shareholders engage in a litigation war, the company could stop functioning or even close. To prevent these outcomes, it is crucial to adopt the proper documents early on, such as shareholder agreements and buy-sell agreements. However, arguments may still threaten operations.

An adept business attorney could help to quietly resolve the issue and negotiate settlements. If that fails, litigation may be necessary. If you own a piece of a business and feel you or the Company have been harmed due to the actions of the majority or management, consulting a Philadelphia shareholder disputes lawyer should be your priority. Call the Jacobs Law Group for tailored legal advice backed by years of experience in business and securities law.

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