Companies take on shareholders to raise capital for many reasons. However, once you bring in shareholders, you face the possibility of disputes over company management.
Conflict among shareholders and partners is common in businesses. It is a natural result of differing perspectives and priorities. That’s healthy. However, there are some disagreements that lead to strife amongst ownership partners that put the entire business at risk:
Breach of duty
The CEO of a company has a fiduciary duty to make responsible business decisions. That is a legal fact, and CEOs in breach of that duty face civil action. However, acting in good faith for a company’s best interests when there are partners and shareholders watching isn’t enough. A good CEO understands that even a perceived breach of that duty leaves them vulnerable.
Misuse of assets
Many companies have an array of attractive “entertainment” assets that employees and owners use for good reasons. These assets could be company vehicles, seats at baseball games or generous expense accounts. No matter what the asset is, the primary use of that asset should be for the benefit of the company. If management uses an asset for personal benefit at the company’s expense, it can cause shareholders to take action.
Furthermore, misused assets don’t even need to be “entertainment” assets. Any improperly managed asset can lead to questions about the company’s overall management.
There are endless choices for those running a business. Where to take the business next, how, and why are important questions to consider. If you cannot get your shareholders to agree with your choices, then your business’s day-to-day function is in jeopardy.
Minority shareholder oppression
Minority shareholders have rights, just the same as the majority stockholders. However, if they feel unheard, one of the few options they have is to pursue litigation. It is a costly, timely exercise.
Build consensus or find representation
The fact is, if you’re running a company and you brought in shareholders, you need to gain and keep their trust. The second they start questioning the choices you make, you’ll find yourself in a fight you cannot control.