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Partnership and Shareholder Disputes

Apr 7, 2021 | Business Litigation

What is the Difference Between Partnership Dispute and Shareholder Dispute?

According to the Corporation Code of California, the types of corporate structure within Californian jurisdiction are divided into two broad categories:

  • Corporations; and
  • Partnerships

The persons who have formed partnerships are known as partners, while shareholders are persons who own one of the shares of a corporation. Therefore, the differences arising among the partners/shareholders within partnership/corporation are referred to as partnership and shareholder disputes.

Why Do Partnership and Shareholder Disputes Occur?

When the business involves two or more people, sooner or later the disagreements between them become inevitable. Partners/shareholders usually succeed in ironing out the differences based on mutual understanding given the common business interest. Unlike it, sometimes disagreements have deep roots full of possible grave consequences for the business. Such disagreements may refer to many different circumstances in connection with the collision of business interests, opposite ideas, breaches, etc.

When Partnership and Shareholder Disputes Are Faced?

The practice shows that more frequently the factors described below do cause or at least contribute to such disputes:

  • Breach of shareholder agreements
  • Breach of fiduciary duty
  • Voluntary corporate dissolution
  • Involuntary corporate dissolution
  • Majority power/minority rights
  • Distribution of assets
  • Embezzlement
  • Misappropriation of trade secrets
  • Bankruptcy/insolvency matters
  • Corporate restructuring
  • Capital operations
  • Usurping corporate powers

Which Situation May Serve As an Example of Partnership/Shareholder Dispute?

In some cases, there are laws aimed at resolving shareholder disputes within the legal procedure. For instance, in the process of voluntary dissolution of a corporation, the minority shareholder’s rights may be violated while distributing corporation assets to the shareholders entitled thereto, so they may fight it by the legal tools vested by the Corporation Code of California. In particular, according to the latter, upon the petition of shareholders who hold shares representing 5 percent the court may take jurisdiction over the voluntary winding-up proceeding if that appears necessary for the protection of any parties. The court, if it assumes jurisdiction, may make such orders as to any matters concerning the winding up of the affairs of the corporation and for the protection of its shareholders.

In short, the shareholder dispute described above could be resolved by the interference of a court for the protection of the shareholder rights.

How Partnership and Shareholder Disputes Are Resolved?

There is a range of methods to resolve such disputes. Among others, they may include:

  • Shareholders settle on their own;
  • A shareholder agreement may prescribe respective mechanisms of resolution for certain situations;
  • Alternative dispute resolution, such as arbitration or mediation;
  • Court proceedings;
  • Applying to an attorney to settle the issue with the opponent privately.

We believe that the most effective and practical way would be entrusting an attorney to reach a settlement in conditions best for your interests.

Get Help For Partnership and Shareholder Disputes

If you need legal assistance when you find settling such disputes is beyond your powers, we invite you to contact an attorney at KAASS LAW at 310-933-5171 and speak to our Glendale business attorney to assist with the process.