Shareholder Disputes

Any business with multiple owners — whether a partnership, a limited liability company or a corporation — is an amalgam of people who ostensibly have the same goal. Realistically, however, every stakeholder may have a different idea of what is best for the company. In corporations with multiple shareholders, many of whom are not directly involved in the company, what is best for the company may conflict with what is best for individuals’ personal finances. Disputes among stakeholders can gridlock company management and operations, leading to costly delays and missed opportunities. The Chicago shareholder and partnership disputes attorneys of the Clinton Law Firm have represented companies and individual stakeholders in disputes for 20 years. We understand both the law and the practical aspects of running a company. We use our knowledge to efficiently resolve and manage these disputes on behalf of our clients.

When a business entity or owner has a dispute with a business partner, it is important to obtain legal representation from a Chicago shareholder disputes attorney. Frequently, the business and its owner require separate representation to avoid a conflict of interest.

The Chicago shareholder disputes lawyers of the Clinton Law Firm handle all aspects of shareholder, LLC member and partnership disputes.

Clinton Law Firm lawyers have experience defending and prosecuting all manner of stakeholder disputes and claims:

• Breaches of fiduciary duty
• Conflicts of interest
• Self-dealing
• Derivative actions
• Minority shareholder rights
• LLC member rights
• Partner rights
• Management compensation issues
• Unfair buy-out agreements
• Failure to pay dividends or distributions
• Management deadlocks
• Member or shareholder freeze-outs
• Appraisal rights
• Through litigation, arbitration or mediation, the attorneys at the Clinton Law Firm aggressively pursue our clients’ cases. Our Chicago shareholder disputes attorneys also handle investment disputes for financial professionals and investors.

The shareholder disputes attorneys in Chicago at the Clinton Law Firm have 20 years of experience counseling both companies and individual shareholders embroiled in disputes over company management. We understand the laws that apply to businesses in Illinois and make full use of all available avenues of dispute resolution to settle these matters efficiently while protecting the rights of our clients. To schedule a consultation and discuss your case with a knowledgeable Chicago business law attorney, call us at 312.357.1515 or contact us online today.

If you are a minority shareholder of a corporation, Illinois provides powerful statutory relief to allow you to break a deadlock or resolve a shareholder dispute. Section 12.56 of the Business Corporation Act provides in part:

(805 ILCS 5/12.56)

• Sec. 12.56. Shareholder remedies: non-public corporations.
  • (a) In an action by a shareholder in a corporation that has no shares listed on a national securities exchange or regularly traded in a market maintained by one or more members of a national or affiliated securities association, the Circuit Court may order one or more of the remedies listed in subsection (b) if it is established that:
    • (1) The directors are deadlocked, whether because of even division in the number of directors or because of greater than majority voting requirements in the articles of incorporation or the by-laws or otherwise, in the management of the corporate affairs; the shareholders are unable to break the deadlock; and either irreparable injury to the corporation is thereby caused or threatened or the business of the corporation can no longer be conducted to the general advantage of the shareholders; or
    • (2) The shareholders are deadlocked in voting power and have failed, for a period that includes at least 2 consecutive annual meeting dates, to elect successors to directors whose terms have expired and either irreparable injury to the corporation is thereby caused or threatened or the business of the corporation can no longer be conducted to the general advantage of the shareholders; or
    • (3) The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent with respect to the petitioning shareholder whether in his or her capacity as a shareholder, director, or officer; or
    • (4) The corporation assets are being misapplied or wasted.

Comment: Thus, subsection (a) allows the shareholder to seek judicial relief if any of the above conditions is satisfied. Many corporations are formed with two 50/50 shareholders. In those situations, it is very easy for a deadlock to emerge. One shareholder has a different opinion about the direction of the business than the other shareholder. Or, one shareholder believes that his co-shareholder is not contributing enough labor or capital to the business.

Subsection(b) provides numerous options for the trial judge who is attempting to resolve a deadlock. It provides:

• (b) The relief which the court may order in an action under subsection (a) includes but is not limited to the following:
  • (1) The performance, prohibition, alteration, or setting aside of any action of the corporation or of its shareholders, directors, or officers of or any other party to the proceedings;
  • (2) The cancellation or alteration of any provision in the corporation's articles of incorporation or by-laws;
  • (3) The removal from office of any director or officer;
  • (4) The appointment of any individual as a director or officer;
  • (5) An accounting with respect to any matter in dispute;
  • (6) The appointment of a custodian to manage the business and affairs of the corporation to serve for the term and under the conditions prescribed by the court;
  • (7) The appointment of a provisional director to serve for the term and under the conditions prescribed by the court;
  • (8) The submission of the dispute to mediation or other forms of non-binding alternative dispute resolution;
  • (9) The payment of dividends;
  • (10) The award of damages to any aggrieved party;
  • (11) The purchase by the corporation or one or more other shareholders of all, but not less than all, of the shares of the petitioning shareholder for their fair value and on the terms determined under subsection (e); or
  • (12) The dissolution of the corporation if the court determines that no remedy specified in subdivisions (1) through (11) or other alternative remedy is sufficient to resolve the matters in dispute. In determining whether to dissolve the corporation, the court shall consider among other relevant evidence the financial condition of the corporation but may not refuse to dissolve the corporation solely because it has accumulated earnings or current operating profits.

Note that under subsection (e) the court can order a share repurchase:

• (e) If the court orders a share purchase, it shall:
  • (i) Determine the fair value of the shares, with or without the assistance of appraisers, taking into account any impact on the value of the shares resulting from the actions giving rise to a petition under this Section;
  • (ii) Consider any financial or legal constraints on the ability of the corporation or the purchasing shareholder to purchase the shares;
  • (iii) Specify the terms of the purchase, including, if appropriate, terms for installment payments, interest at the rate and from the date determined by the court to be equitable, subordination of the purchase obligation to the rights of the corporation's other creditors, security for a deferred purchase price, and a covenant not to compete or other restriction on the seller;
  • (iv) Require the seller to deliver all of his or her shares to the purchaser upon receipt of the purchase price or the first installment of the purchase price; and
  • (v) Retain jurisdiction to enforce the purchase order by, among other remedies, ordering the corporation to be dissolved if the purchase is not completed in accordance with the terms of the purchase order.

For purposes of this subsection (e), "fair value", with respect to a petitioning shareholder's shares, means the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.

Thus, a minority shareholder in a corporation has many remedies under the Illinois Business Corporation Act. These remedies are powerful and are designed to separate parties who cannot get along. Our Chicago Shareholder Dispute Attorneys have handled many such disputes and we believe that we can provide a minority shareholder with ethical and effective legal advice in such situations. If you have any questions, please call us for a free consultation.