Companies that publish misleading information or make false statements concerning their company to entice investors to move toward the company commit shareholder fraud. Fraud can also include a company engaging in misconduct in areas of misusing controlling interests between shareholders.
The area of law governing shareholding activities is complex, but there are several common examples to be aware of to avoid either being a perpetrator or a victim.
Shareholder oppression
There are majority and minority shareholders. When the majority parties act in a way that oppresses those who are minority shareholders, it constitutes shareholder fraud. Examples of this oppression and resulting disputes include:
- Failing to pay dividends
- Providing payments with excessive compensation to majority parties
- Excluding minority holders from decision-making
- Failing to give minority shareholders important and necessary information about the finances and business operations
- Firing minority shareholders without paying out their dividends
Any actions that frustrate a reasonable expectation of action or participation from majority shareholders can constitute oppression.
Misrepresentation and fraud
False statements are the most common signs of fraud. These can vary in the element of misrepresentation, but the overall negative effects stay the same. Opinions are not the same as misrepresentation. Several of the factors for misrepresentation or fraud include purposeful misinformation, lack of intent to keep a promise made, the misrepresentation causing harm to another and individuals making decisions based on the misrepresentation.
Business litigation is complex, and issues involving shareholder disputes require extreme care. With several potential areas of concern regarding fraud and misrepresentation, it is important to understand the guidelines for shareholder activity fully.