Business partnerships often begin with shared goals and mutual trust. Family members, friends, co-workers or a combination form the business to chase the American Dream. But as companies grow and evolve, so do the people behind them. Disputes among shareholders—especially in closely held corporations—can be emotionally charged and legally complex. When the love is gone, navigating a business divorce requires clarity, strategy and experienced legal representation.
Understanding Shareholder Disputes
Shareholder disputes can take many forms, but they typically fall into a few key categories:
Majority vs. Minority Conflicts: Majority shareholders may exert control in ways that disadvantage minority owners, such as withholding dividends or excluding them from decision-making.
Deadlock: Equal ownership can lead to stalemates when shareholders disagree on critical business decisions.
Oppression: Minority shareholders may be subjected to unfair treatment, including being frozen out of profits or operations.
These disputes often arise from unclear expectations, poor communication or a lack of formal governance structures. Recognizing the early signs—such as disagreements over finances, strategy or roles—is essential to prevent escalation.
Fiduciary Duties: What You Owe and What You’re Owed
In Minnesota, shareholders in closely held corporations may owe each other fiduciary duties. These include:
Duty of Loyalty and Candor. Shareholders must act in good faith and disclose material information. Using surprise or intimidation to force decisions—especially in buyouts—can be a breach of this duty.
Majority Shareholders: They hold power but must not abuse it. Majority owners should not:
- Withhold dividends unfairly
- Siphon assets to other ventures
- Use corporate funds for personal benefit
Minority Shareholders. Minority shareholders who actively manage the business may also owe fiduciary duties. The key factor is control—if a minority shareholder can block decisions or influence operations, fiduciary obligations may apply.
Understanding these duties is critical. Breaches can lead to claims for damages, injunctions or forced buyouts.
Common Causes of Business Divorce
Disputes often stem from what was not addressed in the corporation’s governing documents. Common triggers include:
Undefined Roles and Expectations. Is this a full-time commitment or a side hustle? Are shareholders free to pursue other ventures? If these questions aren’t answered early, they often become flashpoints later.
Usurpation of Corporate Opportunities. When a shareholder takes a business opportunity for personal gain that should have gone to the corporation, it can lead to serious legal consequences.
Capital Contributions. When the business needs funding, who decides? What happens if a shareholder can’t or won’t contribute? Without clear rules, resentment builds quickly.
Decision-Making Authority. Who runs the day-to-day operations? What decisions require shareholder approval? If this isn’t spelled out, disputes over control are inevitable.
Selling Shares. Transfer restrictions are common, but without a defined buyout process or valuation method, shareholders can feel trapped. This often leads to litigation when one party wants out and the others can’t agree on terms.
Resolving Disputes Without Litigation
Mediation. Mediation is a confidential, cost-effective way to resolve disputes. A neutral mediator helps parties find common ground without the adversarial nature of court proceedings.
Benefits: Preserves relationships, avoids public exposure, allows creative solutions.
Best Practices: Mediate early—before positions harden—if sufficient information is accessible to do so and there are not other pressing issues requiring immediate court intervention. Prepare thoroughly—know your goals and limits. Choose a mediator with business and legal experience.
Arbitration and Negotiation. Arbitration offers a binding decision without a trial. Negotiation allows parties to craft their own resolution. Both can be faster and less expensive than litigation.
Tip: Include ADR clauses in shareholder agreements, if appropriate for your business, to streamline future disputes.
Special Litigation Committees (SLCs). SLCs are formed by boards to investigate and resolve such disputes. They must be independent and impartial, and their decisions are subject to judicial review.
SLCs investigate misconduct, evaluate derivative claims, recommend corporate action.
When Litigation Is Necessary
Despite best efforts, some disputes require litigation—especially when:
- Fiduciary duties are breached
- Shareholder agreements are violated
- One party refuses to negotiate
Pros and Cons
- Pros: Enforce rights, recover damages, clarify ownership, court orders
- Cons: Expensive, time-consuming, public
As a board-certified civil trial specialist, I’ve represented clients on all sides—minority owners, majority owners, and the business itself. I understand the nuances and emotional weight of these cases and know how to protect your interests in and out of court.
Conclusion: Protect Your Business and Your Future
Business divorces are complex, but they don’t have to be destructive. With clear agreements, proactive planning, and experienced legal counsel, you can navigate disputes with confidence.
If you’re a Minnesota business owner facing a shareholder conflict—or want to prevent one—having experienced legal counsel is crucial to make your business survives and thrives, even when the love is gone.
