Atlanta Partnership Dispute Attorney
Ownership disputes are some of the most complicated commercial suits. Claims that a majority shareholder has deliberately damaged the value of a minority shareholders’ stake (Minority Squeeze Out Claims) are extremely complex and require great detail in developing the necessary facts to pursue or defend the claims.
The Shareholders Law in Georgia
Under Georgia law, majority shareholders of a corporation owe a duty to the minority shareholders to protect their ownership interests. The majority owners cannot take steps which would intentionally de-value the ownership interest of minority shareholder. Courts consider several factors to determine if an action by the corporation gives the minority owners a claim.
First, courts look to see if the actions taken by the majority affect only one shareholder or one group of shareholders, the courts have held that those affected shareholders have a “direct action” against those owners who took the steps against their interest.
The most common examples of these actions are the following:
- Terminating the minority shareholder from employment with the corporation;
- Withholding financial records from the minority shareholder so that he or she will not know how the company is operating;
- Declaring excessive raises or bonuses to those shareholder who are employed by the company and refusing any additional compensation to those minority owners; and
- Refusing to declare a profit distribution and keeping large amounts of profits inside the company so that the minority shareholder will have a tax burden based upon the earnings of the company without any additional distribution of profits to pay those taxes.
All of this behavior can give rise to a claim against the majority owners of a closely held company based upon the majority shareholders’ duties to the minority owners.
Derivative Action in Georgia
On the other hand, if the action affected all shareholders similarly, and if so, the affected owners may have a “derivative action” against the company for taking actions that are against the best interests of the company. These types of claims are extremely complex and require cooperation of the affected minority owners. In order to determine if a valid derivative claim exists, courts look to the nature of the action itself to determine if it was based on a legitimate business interest or was designed to benefit only one class or group of shareholders over another. This principle is called the “Business Judgment Rule.” Under this principle, the corporation has the burden of showing that the actions it took were based on sound business judgment, regardless of whether they ultimately were deemed successful.
These are the most common types of claims of suppression or squeeze out of a minority owners’ interest in a company. On the other hand, many other types of claims exist, such as deliberate removal of funds from the corporation without authorization, diverting company funds to a family member without a legitimate business purpose or need and investment of company profits in an investment that only benefits one class of owners. These actions are in many ways more straight forward in their facts, but all these claims have one common theme - diverting company funds to benefit only one shareholder or group of shareholders over all the others.
What Are Common Reasons for Ownership Disputes in Georgia Businesses?
Ownership disputes can arise from a variety of common reasons. One frequent source of conflict is disagreements over decision-making and management authority. Owners may clash on strategic directions, investments, or day-to-day operations. Financial issues, such as profit distributions or capital contributions, can also lead to disputes, especially when financial expectations are not met. The valuation and sale of business interests can be contentious, particularly in exit scenarios where one owner wants to sell while others prefer to stay.
Furthermore, breaches of fiduciary duties and allegations of misconduct by one owner against another, such as mismanagement, self-dealing, or embezzlement, can lead to disputes. Conflicts may also emerge when owners have different visions for the business's future or if there's a lack of clarity in the ownership agreement. These issues often necessitate legal intervention to reach a resolution and protect the interests of all parties involved.
Ways to Resolve Business Ownership Disputes
Business ownership dispute resolutions involve a structured approach to resolving conflicts while safeguarding the business's stability. Mediation, facilitated by a neutral third party, allows owners to discuss their differences and find common ground. It's often less costly and time-consuming than litigation.
Buy-sell agreements, or exit strategies, should be in place from the outset. When no buy sell agreements are in place, you need an experienced litigator to get the right valuation for your shares, which can be done by the use of experts and a strategic evaluation of all the facts of your case.
Another choice is arbitration, in which an impartial third party hears the case and renders a ruling that, depending on the terms of the agreement, may be enforceable.
Often in these situations, some business owners take advantage of their partners because they know they have very few other options. Having an experienced litigator always allows a business owner to protect his interests by carefully protecting his interests, in litigation if necessary.
Court proceedings can be expensive and time-consuming. It's imperative to speak with a qualified Atlanta business ownership dispute attorney at Beal Sutherland Berlin & Brown to make sure that the dispute's nature and your company's particular circumstances are taken into account when selecting a resolution strategy.
How Our Atlanta Business Ownership Dispute Lawyers Can Help
We have a wealth of experience in the area of ownership disputes in the following industries with these successful representations:
- Successful three week arbitration over the sale of stock in a Professional Employment Organization resulting in over $800,000.00 award;
- Successful week long arbitration over the ownership of a mammography clinic between competing physicians;
- Successful litigation over the value of an owner’s stock in one of the Southeast’s largest privately owned jewelry store chains based on claims that the majority owners had squeezed out the minority owner’s interest in the company, resulting in multi-million dollar settlement;
- Successful representation of numerous owners of retail and service companies in Henry, Gwinnett, Cobb, Fulton and Dekalb Counties as well as Augusta, Savannah and North Georgia in all phases of litigation, including trial, arbitration and mediation;
- Successful trial and appeal of minority owner's claims of squeeze out from an insurance adjusting company.