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3 reasons shareholders may take action against a company

On Behalf of | Sep 6, 2023 | Shareholder Litigation

Shareholders invest in a business because they want to play a role in the company’s operations and/or because they want a return on their investment. Shareholders play a role in a company’s operations by attending meetings and potentially electing leadership or even adjusting the company’s focus after making their initial investment. The money that they provide can help to keep a company solvent, and the leadership that shareholders provide can influence a company’s culture and long-term success.

Unfortunately, sometimes shareholders find that companies violate their agreements and possibly their rights. Shareholders may then initiate litigation to better safeguard their interests. For example, the following challenges prompt a large percentage of shareholder lawsuits filed in the U.S. during any given year.

A denial of voting rights

Sometimes, at a previously closely-held organization or at a company where a group of shareholders wants to take control, one shareholder or a group of them may seek to deprive others of their right to have a say in the company’s operations. They may refuse to allow votes on major issues or seek to manipulate people into altering their votes. In a scenario in which shareholders no longer have a say in company operations or the selection of new executives, they could potentially take action against the organization.

A lockout at meetings

Sometimes, shareholders with a vested interest in an organization arrive for a meeting expecting to discuss issues and give their input, only to get turned away from the facility. Attempts that take over sometimes involve intentionally freezing out particular shareholders by denying them access to meetings and crucial company information. Attempts to limit someone’s involvement in shareholder meetings or trick them about their time and location could provide grounds for legal action in some cases.

A denial of dividends

Shareholders deserve a return on the investment that they have made in a company. When the organization reports a profit, each shareholder should receive a certain amount of compensation based on the investment that they have made in the company. When an organization either denies certain shareholders their fair share of the profit or when the company may have manipulated financial records to avoid shareholder compensation entirely, the parties affected may have no choice but to take legal action.

Understanding what drives many of the most serious shareholder disputes within companies can help both those investing in organizations and those helping to run them identify when an issue has begun to spiral out of control and when seeking legal guidance may be wise.