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Business Litigation: Corporate Shareholder Disputes

On Behalf of | Nov 30, 2014 | Business Litigation

Buffington Law Firm’s business litigation attorneys have successfully handled numerous lawsuits dealing with disputes over corporate control.  When disputes arise among the shareholders or directors of a corporation often there is a struggle to determine who will ultimately control the corporation or limited liability company.

One of the most common causes of corporate litigation is a failure to document corporate formalities. Small businesses that are set up as corporations or limited liability companies (“LLCs”) are supposed to observe at least a minimum of corporate formalities such as an annual shareholder’s meeting, actions by the board of directors, and/or formal election of officers. In the real world it is not uncommon that the people who own small businesses largely or completely ignore these formalities. Usually the people that start and operate a small business are very knowledgeable about the nuts-and-bolts of running the business. But when it comes to observing corporate formalities, not so much. This can lead to disputes over who is entitled to “call the shots” concerning the corporation and even who the true owners are. When this type of lawsuit occurs you need a law firm experienced in handling corporate disputes to advocate your case.

Buffington Law Firm’s business litigation attorneys have handled cases where it was unclear who the shareholders were, the percentages owned by the various owners, who the directors were, etc. There is an old adage in the legal world that “corporate formalities are not important until they are.” Sometimes one of the owners claims to be the sole, 100% shareholder and tries to freeze out the other owners. Other times a majority block of shareholders or LLC members suddenly claim that the minority owners are not owners at all, or that they have no rights of control to operate the business. When a corporation, LLC, or other entity has not elected directors, officers, or otherwise documented matters of ownership and control, it can be very dicey going to court in order to prevent someone from hijacking the business.

In court, the corporation’s owners invariably discover that Superior Court Judges take corporate formalities, and failures in performing them, very seriously. It may not seem like a big deal to dispense with things like annual election of directors and officers, the shareholders’ meeting, etc. But if one of the shareholders decides to use this as an excuse to bring a lawsuit, the consequences can be serious and expensive. The corporation may seem like an afterthought to a group of people excited about starting a business, but once you are in court it is very different and the corporation and how it is supposed to have been operated and documented becomes critical. We simply cannot overemphasize the importance of documenting who the shareholders are, their percentages of ownership, who the directors are, and the election of officers and directors, to name some of the more common issues that often lead to litigation.

Buffington Law Firm’s corporate litigation attorneys have handled numerous cases involving corporate control that derived from a failure by the owners to pay attention to corporate formalities. In almost every case these omissions were unintentional and no harm was intended. If you are involved in a dispute concerning corporate ownership and control, we invite you to give us a call for a no-obligation free legal consultation to discuss your case with one of our experienced corporate litigation attorneys.