Shareholder conflicts remain one of the most significant threats to the smooth operation and long-term sustainability of a company. These disputes typically arise when shareholders disagree on key issues such as management decisions, business operations, financial policies, or the general direction of the company. If not promptly and properly addressed, such conflicts erode trust, damage internal relationships, disrupt corporate governance, and, in severe cases, jeopardize the very survival of the business.
A shareholder can be a person, company, or organization that holds stock(s) in a given company. A shareholder must own a minimum of one share in a company’s stock or mutual fund to make them a partial owner1.
This article aims to equip shareholders, directors and business owners with the knowledge needed to promote fairness, accountability and long-term corporate harmony.
WHAT ARE THE RIGHTS OF SHAREHOLDERS?
The Companies & Allied Matters Act, 2020 provides shareholders with several basic rights to sell or transfer shares, the right to dividends, the right to information on the company’s financial and operational information, the right to sue the company for any wrongdoing, and the right to attend and vote at meetings
COMMON CAUSES OF PARTNERS/SHAREHOLDERS CONFLICTS
1. Failure to comply with the terms of the shareholders’ agreement
A shareholders’ agreement is a critical document outlining how a company operates, detailing shareholder rights and obligations. This agreement ensures fair treatment, outlines share pricing and determines future shareholder decisions2. A breach of a shareholders’ agreement causes conflict because it undermines trust, disrupts agreed decision-making processes, and creates disputes over financial matters such as dividends or capital contributions. Ultimately, failing to honour the terms of the agreement damages relationships among shareholders and can threaten the stability and growth of the business.
2. The position of minority vis-á-vis majority shareholders
Tyranny occurs when majority shareholders, who are in control of the company dictate and implement their influence to run and administer the company’s affairs for their individual gains in complete disregard or detrimental treatment to and in opposition to the minority shareholders or investors3.
3. Lack of proper communication/record keeping
Effective communication with shareholders is essential for building and maintaining trust. When shareholders lack access to necessary information about the company, distrust can arise. To promote transparency and prevent misunderstandings from escalating into disputes, companies should regularly maintain clear and organized records of key business decisions, minutes of meetings, financial statements, annual reports, etc. Providing updates and ensuring proper record-keeping equips shareholders with the information they need and helps sustain confidence in the company’s governance.
4.Unresolved personal disputes between shareholders
Personal disputes, when left unaddressed, may lead to conflicts between shareholders; ego clashes that have little to do with business operations may spill over into the boardroom by causing clashes in decision-making, reduced teamwork, and power struggles. These issues create tension, lower productivity, and may harm both relationships and the overall performance of the company.
LEGAL FRAMEWORKS/MECHANISMS FOR RESOLVING SHAREHOLDERS CONFLICT
When shareholders’ rights are violated or they become aggrieved by the actions of company management, CAMA provides several remedies that may be pursued individually or collectively. Some of these remedies are discussed below.
1. Derivative Action4
A derivative action is a lawsuit brought by a shareholder on behalf of the company against wrongdoers, usually directors or insiders, who have harmed the company. Since the company is a separate legal entity, it is the proper party to sue. However, where those in control refuse to take action, shareholders may seek the leave of court to pursue a derivative action to protect the company’s interests. Conditions for derivative actions include that the wrong must be against the company not against the individual shareholder, cause of action must have arisen by negligence or breach of trust by directors or former directors, the shareholder must have made a demand on the company to take action and it must have been refused or ignored and the shareholder must act in good faith and in the best interest of the company5. This remedy is crucial in cases involving misappropriation of company assets or breach of directors’ fiduciary duties.
2. Personal or Representative Actions6
A shareholder may institute a personal action to enforce a right due to him personally, or a representative action on behalf of himself and other affected members to enforce any right due to them. For instance, if a shareholder is denied the right to vote or is excluded from meetings unlawfully, they may bring a personal action to enforce their individual rights. Where an action is established in this regard, the aggrieved shareholder is entitled to damages for any loss incurred or a declaration or injunction against the directors.
3. Unfairly prejudicial and oppressive conduct7
A shareholder may apply to the Federal High Court for relief where the affairs of the company are being conducted in a manner oppressive to a member or members, unfairly prejudicial to the interests of any shareholder(s) or in disregard of their interests.
4. Remedies available for minority shareholders
The general rule is that, in cases involving a wrong done to a company or an association of persons, the proper plaintiff to bring an action is, by default, the company or association itself. Courts will not interfere in the internal affairs of a company at the behest of minority members, particularly where the irregularities complained of are matters that the majority can lawfully undertake or rectify8. However, the law provides for exceptions that empower minority shareholders to act when the majority’s conduct threatens their rights or the interests of the company itself.
Exceptional circumstances when the court will allow minority shareholders to bring an action on behalf of the company9
a) When the acts of the company are illegal or ultra vires.
b) When the majority shareholders purport to do, by ordinary resolution, acts which ought to be done by special resolution.
c) When the act violates the personal rights of the applicant as a member of the company.
d) When the act is a fraud on the company or minority members of the company, which the directors are primarily in control of.
e) When a company meeting cannot be called in time to redress the wrong done to the company or the minority shareholders.
f) Where the directors have benefited or are likely to benefit from their negligence or breach of duty.
g) Where the interest of justice demands.
STRATEGIES FOR PREVENTING FUTURE CONFLICTS BETWEEN SHAREHOLDERS
1. Comprehensive Shareholders’ Agreement: A well-drafted shareholders’ agreement should clearly define the rights, duties and expectations of each shareholder. It must outline how key decisions will be made, including voting rights and dispute-resolution procedures. The agreement should also set out rules for share transfers and valuation to ensure clarity and prevent future disputes.
2. Strong Corporate Governance Practices: A company must put in place a well-structured board, including independent directors where necessary, to promote balanced decision-making, establish clear checks and balances to prevent misuse of authority, and ensure full compliance with statutory and regulatory requirements to maintain transparency and accountability.
3. Keeping Detailed Records: Proper documentation helps clarify what was agreed upon, preventing disputes that arise from undocumented decisions. Detailed records also serve as valuable evidence during conflicts, especially when a shareholder disagrees with actions taken by the company or other shareholders. Having written proof of decisions and the reasons behind them can help resolve conflicting interests before they escalate.
4. Incorporation of Alternative Dispute Resolution (ADR) Clauses: The inclusion of mediation and arbitration provisions in the shareholders’ agreement can ensure disputes are resolved efficiently, privately, and with minimal disruption to the business’ operations. ADR helps reduce reliance on lengthy and costly litigation while promoting quicker and more cooperative resolutions.
5. Defined Financial Policies in Place: Setting clear rules for dividend distribution, profit reinvestment, and capital contributions can avoid misunderstandings. Establishing transparent financial expectations from the outset helps prevent disputes and ensures all shareholders understand how the company’s finances will be managed.
CONCLUSION
Shareholder conflicts are an inevitable part of corporate life, but they do not have to jeopardize the stability or success of a business. As this article has shown, most disputes arise not from the complexity of the law, but from the breakdown of communication, disregard for governance structures, and failure to respect the rights and expectations of all stakeholders. The Companies and Allied Matters Act (CAMA), 2020, provides a comprehensive framework for protecting shareholders, majority and minority alike, through remedies such as derivative actions, personal actions and reliefs against oppressive or unfairly prejudicial conduct. However, the true strength of any company lies not merely in its legal safeguards, but in its willingness to adopt proactive measures that reduce the likelihood of conflict in the first place.
Footnotes
1. CFI Team. “Shareholder.” Corporate Finance Institute, Corporate Finance Institute, 17 Feb. 2020, www.corporatefinanceinstitute.com/resources/equities/shareholder/ > accessed on 11th December. 2025.
2. Chen, James. “Shareholders’ Agreement Definition.” Investopedia, 23 Mar.2022, www.investopedia.com/terms/s/shareholdersagreement.asp accessed on 11th December, 2025.
3. D Nelson, ‘The Dilemma of the Shareholders under the Nigerian CompanyLaw’, 2015 (37) Journal of Law, Policy and Globalization < file:///Users/thetrustedasvisors/Downloads/22553-24932-1-PB%20(2).pdf > accessed on 11th December, 2025.
4. CAMA 2020, s346 (1 & 2)
6. Ibid, s.344
7. Ibid., ss. 353 & 354
8. This rule was established in Foss v. Harbottle (1843) 2 KB 461. It is enshrined in 341, CAMA 2020.
9. CAMA 2020, s. 343
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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