Disputes involving ownership interests frequently come up in the realm of closely held corporations. These conflicts are particularly common when a company’s directors, officers or majority shareholders are buying or selling ownership interests. According to the firm Farella Braun + Martel in an article originally published in Private Company Director, these individuals are held to fiduciary duties which require them to act in the best interest of their company.
A common misconception that often arises is that these disputes are governed by these same fiduciary duties. However, this isn’t generally the case. These duties are often narrowly defined and may not fully cover all aspects of such disputes, causing serious implications for both the individuals and corporations involved.
Still, corporations should not be disheartened by the prospect of shareholder disputes. In many cases, these disputes can be covered by insurance. Coverage could include issues related to fraud, misrepresentation, breach of contract, and disputes concerning the sale or purchase of ownership interests, among other things.
Not all insurance policies are created equal, however, and corporations would be well-served to carefully review the extent of their coverage. It’s crucial to fully understand the policy’s terms, including what it covers, what it excludes, and the conditions necessary for coverage. Having a comprehensive knowledge of these elements can help companies navigate the often complex landscape of shareholder disputes.
Looking ahead, it is clear that shareholder disputes will continue to be a prevalent issue for closely held corporations. Understanding the role of fiduciary duties in these disputes, and the potential for insurance coverage, could make a significant difference in how companies approach and resolve these conflicts.