Meaning
Legal conflicts arise over the ownership, valuation, voting power or transfer rights associated with shares in a company. An equity dispute typically involves disagreements between founders, early investors, employees or consultants regarding the allocation of the cap table. These battles often intensify during a liquidity event such as an acquisition or an initial public offering.
The resolution determines the final distribution of cash proceeds.
Sources of Conflict
Poorly drafted vesting schedules or ambiguous anti-dilution clauses cause most of these issues. An equity dispute might center on whether a departing executive met the requirements to keep their shares. It could also involve claims of minority oppression where a majority holder acts to reduce the value of other stakes.
Written evidence from the time of the grant is paramount to the defense or prosecution of the claim.
Resolution Forums
Arbitration is a common venue for settling these matters privately. In an equity dispute, the parties may also seek a declaratory judgment from a court to confirm the percentage of ownership. Settlements often involve a combination of cash payments and share buybacks.
Damage Calculation
Quantifying the loss involves assessing the difference between the actual share value and the value if the breach had not occurred. Because the worth of a private company is subjective, an equity dispute relies heavily on expert testimony from forensic accountants. The court looks at historical rounds of funding and comparable market transactions to set a price.
