Introduction Shareholder disputes are a common occurrence in many business settings. Whether you own a small, family-run business or manage a large publicly traded company, it’s important to be aware of the legal implications and potential solutions for shareholder disputes. This blog will explore what a shareholder dispute is, the legal framework and implications of shareholder disputes, and how to best address them. What is a Shareholder Dispute? A shareholder dispute is any disagreement between two or more investors, shareholders or other members of a company regarding the rights, responsibilities, or roles of ownership. Shareholder disputes can encompass a wide variety of issues, including disagreements over the direction of the business, control of the board of directors, the payment of dividends, and more.   Remedies for Shareholder Disputes fall into two main categories under Ontario laws: Oppression remedies and Derivative actions Oppression remedies are the most common type of shareholder dispute in Ontario. Under the oppression remedy, a shareholder can reach out to the court to protect their rights as a minority shareholder. This is typically done when a majority shareholder is taking advantage of their power, oppressing other shareholders and depriving them of the rights and benefits of owning shares. The court can be asked to issue an order requiring that unfair or oppressive conduct stop or to award damages. Derivative actions in Ontario are claims brought by one shareholder on behalf of the corporation against a third party, with the potential for the resulting award to benefit all shareholders. A derivative action is usually undertaken when the corporation cannot bring the action. In this case, the shareholder must ask the court’s permission to pursue a derivative action. If the court grants permission, the shareholder will act on behalf of the corporation, and any damages awarded will be paid to the corporation rather than the shareholder. These two methods of resolving shareholder disputes are the primary remedies under the Ontario Business Corporations Act. In each case, shareholders may be entitled to an award of damages or for their rights as shareholders to be restored. Although these are the primary avenues of relief under Ontario law, other avenues may exist depending on the specific facts and circumstances of the dispute. Legal Framework and Implications of Shareholder Disputes in Ontario Under the Business Corporations Act (Ontario) (“OBCA”), there is an obligation on the part of all shareholders to act in good faith and treat each other fairly. There are also specific rules governing the rights and powers of shareholders, directors and officers, as well as the duties they owe to the corporation. In the event of a dispute, the Ontario Business Corporations Act (OBCA) outlines the steps that can be taken to resolve the matter. These include: appointing a mediator, calling a general meeting of shareholders, applying to courts for assistance, or forming a shareholders’ agreement. In addition, the Ontario Business Corporations Act (OBCA) protects shareholders from oppressive conduct, which is defined as anything a majority shareholder does that has the object or effect of prejudicing the interests of minority shareholders. This could include the unjustified exclusion of a minority shareholder from the management of the business, manipulating shares to increase the majority shareholder’s voting power, and more. How Does A Shareholder Dispute Affect Your Company? When shareholder disputes arise, it can have serious implications for a company’s operations and profitability. It can lead to a decrease in morale and trust among shareholders, decreasing productivity and efficiency. If a dispute cannot be resolved internally, it can be time-consuming and costly to take the case to court. This can result in significant monetary losses for the company. Furthermore, unresolved shareholder disputes can become public and affect the company’s reputation, resulting in the loss of customers and investors.
Conclusion Shareholder disputes are a critical issue for businesses in Ontario. These disputes may arise from differences of opinion between shareholders related to the operation and management of the business. Understanding the legal risks associated with shareholder disputes and how to effectively resolve them is vital. According to the Ontario Business Corporations Act (OBCA), directors should keep in mind that they have fiduciary duties to the corporation and its shareholders. This means they must act in good faith when protecting the interests of the corporation and its shareholders. To effectively address these disputes, directors should communicate regularly with the shareholders throughout the process. This includes providing shareholders with the necessary information to help them make informed decisions. It is also essential to ensure that any resolution or agreement is adequately documented to reduce the potential for a future dispute. Furthermore, directors should seek legal advice if the dispute becomes too complex or contentious. Overall, it is essential to understand the potential implications of a shareholder dispute and take appropriate action promptly. Doing so can help protect the interests of the company and its shareholders.