In a business setting, “shares” are the amount of ownership interest that a person has in a company. The ownership interest is more commonly known as stock, and can be categorized into different levels of priority for stockholders. “Dividends” are the amount of profits that are distributed to each shareholder when the stocks are traded. Dividends are usually equal amongst stockholders of the same class (such as preferred, common, etc.)
Shares and dividends are important to the survival and success of corporations, as it helps to generate profit and can make the company’s name known to the public. However, they can be a major source of legal disputes, because there can be so many different parties involved in the stock activity of the company.
Disputes over stocks and dividends can be caused by many different issues. A majority of corporate disputes are due to shareholders not understanding their rights. Another cause is when corporate directors or officers neglect their duty to the corporation. Other sources of shareholder and dividend disputes can include:
- Failure to provide the appropriate accounting, financial, and statutory information
- Breaches of shareholder agreements or contracts
- Disagreements between shareholders
- Violations of shareholder rights
- Breaches of director/officer duties
- Poorly written stock and dividend policies
- A lack of overall foresight for company management and planning strategies
Oftentimes, disputes over shares and dividends can be resolved internally through the company’s human resources department. The company may have to take action such as reforming their stock policies. Laws require corporations to have some sort of reporting mechanism for unfair business dealings within the company.
If the dispute cannot be resolved internally, it may become necessary to take legal action. This can take the form of filing a complaint with an outside regulatory agency such as the Securities and Exchange Commission (SEC). Or, the injured party may need to file a private lawsuit against the company in a civil court of law.
Business laws prohibit conduct that is “unfairly prejudicial” to shareholders. “Unfairly prejudicial” means that the shareholder has been treated unequally compared with other stockholders in the same class. Many shareholder and dividend disputes fall under this category.
Some examples of unfairly prejudicial conduct include:
- Excluding the shareholder from decision-making where there is a valid expectation of their participation
- Diverting business to a different company to the detriment of the shareholder
- Awarding dividends to shareholders unequally or in excess of standard financial expectations
- Abuses of power by the board or breaches of corporate articles
If a court finds that there has been an instance of unfair prejudice towards shareholders, it has much discretion to apply an appropriate remedy. In most cases, the court can order that the shares be purchased at “fair market value”, often by the company itself. Or, in more serious disputes, the court may have to exercise its power to initiate wind-up or dissolution of the company.
Disputes over shares and dividends can often involve many different overlapping causes. If you need advice or assistance with your rights as a shareholder, you may wish to contact a business lawyer in your area. A skilled business attorney can help you file a claim and assist you in recovering your losses. Also, business laws differ from area to area, but an attorney can explain these to you in detail.