Shareholder Disputes: What Happens When Owners of a Business Can’t Get Along

Middle age man and woman business workers using laptop working at office and having a disagreement - shareholders disputes concept

Shareholder disputes can arise for many different reasons. Unfortunately, when they do, a business can suffer significant disruption. Not only can a conflict between business owners harm a company’s bottom line, but it can also impact its reputation for years to come. While being a shareholder can come with a certain amount of risk, it’s essential to understand the common reasons disputes occur — and when it may be necessary to assert your shareholder rights.         

Common Causes of Shareholder Disputes

A shareholder dispute is a legal disagreement that occurs between shareholders over company management issues, corporate governance, financial decisions, or operational matters. Since all shareholders have a financial stake in the company, these types of conflicts can be complex. Due to the nature of these matters, they are often much more contentious than other business-related disputes and we often refer to them as Business Divorces. 

Shareholder disputes commonly arise in connection with disagreements over the need for more monetary contributions, use of company resources, or misinterpretation of the organizational documents. Other causes of shareholder disputes can include the following: 

  • Difference in views on business strategy
  • Failure of a shareholder to fulfill their fiduciary duty
  • Disagreements over the direction of the company
  • Conflicts regarding distribution of dividends
  • Disputes arising from decision-making matters
  • Breakdown in communication
  • Lack of transparency regarding financial matters
  • Allegations regarding conflicts of interest
  • Breach of the shareholder agreement
  • Tortious interference claims
  • Misrepresentation or fraud allegations 

In addition, conflicts are not uncommon between minority and majority shareholders. For instance, disputes can arise if a majority shareholder refuses to allow a minority shareholder to inspect the books or notify them about official meetings. Minority shareholders are at a disadvantage from the outset because they have fewer shares in the company and less control over the business. However, if a minority shareholder feels that the actions of a minority shareholder are oppressing or unfairly prejudicing them, they may assert their shareholder rights.              

Using a Shareholder Agreement to Prevent Disputes

A well-drafted shareholder agreement can be critical when it comes to preventing or minimizing shareholder disputes before they occur. This is a legally binding document that outlines shareholder rights and responsibilities, the policies regarding how decisions should be made, and what happens if shareholders disagree on certain issues. It can also specify the dispute resolution method that should be used in the event of a conflict and help to safeguard ongoing operations.     

A thorough shareholder agreement can also include details concerning the appointment of directors, shareholder meetings, voting issues, buy-outs, capital contributions, and share transfers. The document should be specifically tailored to the company and revised periodically as the business grows. When all shareholders are on the same page and understand what is expected of them and the company, there are fewer opportunities for misunderstandings — and shareholder disputes.     

Resolving Shareholder Disputes with Alternative Dispute Resolution

Open and honest communication between shareholders is crucial to help prevent disputes before they can arise. But in the event a conflict occurs, and shareholder rights must be upheld, it’s best for the parties to work together to reach a resolution rather than immediately resort to litigation. Importantly, alternative dispute resolution methods such as mediation and arbitration can help shareholders find efficient and cost-effective solutions to their disputes outside the courtroom. 


When mediation is used to address shareholder disputes, a neutral third party facilitates communication between the parties to help them resolve their conflicts. Unlike litigation, where a judge decides the outcome, the mediation process encourages parties to work collaboratively to reach a settlement agreement that is in their best interests. Since the mediation process is non-adversarial, conflict can be kept to a minimum and business relationships can often be preserved. 


Similar to mediation, arbitration is a confidential and informal process that allows shareholders to resolve their disputes without a judge or jury.  The decision in the case is rendered by a neutral third-party called an arbitrator and can be either binding or non-binding. While arbitration resembles a mini trial, the rules of evidence are relaxed and the discovery process usually isn’t as lengthy. Unlike with litigation, where every pleading and motion becomes part of the public record, arbitration allows the parties to maintain privacy.       

Alternative dispute resolution typically has a high success rate in resolving shareholder disputes. If attempts at mediation or arbitration fail, litigation may be necessary. However, because litigation can be damaging to the future and profit margin of a business, it should only be used as a last resort.    

Contact an Experienced North Dakota Shareholder Rights Attorney

In the event your shareholder rights have been violated, it may be necessary to take legal action. A knowledgeable business attorney can best advise you regarding your options and work with you to protect your business interests. Located in Fargo, Fremstad Law offers high quality legal services to corporate shareholders and businesses of all sizes in North Dakota and Minnesota for a wide variety of business matters, including those involving shareholder disputes. We welcome you to contact us online or call (701) 401-9440 to learn how we can assist you.