Causes Of Shareholder Disputes

The shareholders have become very important in today’s’ business world. Rather it is a big corporation or small business, the majority of businesses have shareholders. The shareholder can be any person who invests in the business to earn a better return. They are usually said to be a business owner but their authority is limited to the size of the investment, in other words, their shareholding in the business. The more the shareholders, the more complex become the business relationships. Because management and shareholders need to be on the same line to avoid any dispute. But there are many scenarios where the shareholders will not be happy with the management of the business. The majority of shareholders usually control the management of the business or they run the business on their own. The common causes that arise shareholder disputes in Australia are.

Contract’s Breach:

In terms of smaller businesses where the number of shareholders is limited. Usually, all shareholder defines their criteria in the contracts. When one party breaches that contracts, it can raise a dispute. The breach may be one of any nature like the business activity that was not permitted in the contract, not giving the complete return on the profit or investing in a new venture without the consent of all shareholders. Even the majority shareholder has to follow the parameters agreed in the contract to avoid any dispute. This dispute can be settled by appointing a mediator to ensure the compliance of contract from all parties. 

Shareholder oppression:

This is very common where the majority shareholder tries to oppress the importance or rights of the minority shareholder. For example, not sharing the proper information about the business progress or not giving the proper share from the profit. Not limited to this, the majority shareholder is liable to get the consent from minority shareholder in other business matters. The other examples of shareholders oppression are;

  • Nepotism in the organization
  • Not allowing minority shareholders in the premises
  • Embezzlement
  • Behaviour misconduct etc. 

Fiduciary Duty:

One party in the contract have a fiduciary duty to another. The fiduciary duty is the obligation on both parties, that they will act in the best interest for each other. In case, if there is a majority shareholder who is managing the business operation, have to ensure that their every decision will be the best interest of their shareholders. No partner can be involved in activities that will be of their interest. Getting extra financial benefits from the business. If you are interested about forensic auditor in Sydney you can visit this site https://quantumforensic.com.au/our-services/fai/.

Fraud:

The business works on trust but people can be deceptive. This is the main cause that the shareholder gets annoyed and loses their trust. The fraud can be done by major shareholder or minor, or maybe by the people appointed by them. Any shareholder, major or minor, must ensure that they should work for the best of the business and never allow any person to conduct any fraud. Any party involved in fraudulent activity will be penalized as per the shareholder act.