A business decision can leave you frustrated when you think another owner or company leader acted against your interests. Yet a disagreement does not always give you legal grounds to challenge a decision. The reason for the decision and your company’s governing rules can matter.
Here are the situations that may need a closer look.
Violations of governing documents
You may have grounds to challenge a decision when it breaks a rule that governs your company. Examples include:
- Company bylaws
- Shareholder agreement
- Articles of incorporation
- Other agreements
These documents may set rules for voting, approvals or management decisions. For example, if a company takes an action that needs shareholder approval but does not get it, you may have grounds to challenge that action.
Fiduciary-duty violations
You may have grounds for a challenge when someone uses their role to benefit themselves at the company’s expense. Self-dealing and conflicts of interest can raise serious concerns. This can happen when a director or other decision-maker puts a personal interest ahead of the company’s interests.
Pennsylvania law requires directors to act in good faith and in the company’s best interests. The Business Judgment Rule can protect a director who makes an informed business decision in good faith and without self-dealing.
Bad-faith decisions
You may have a stronger basis for action when a decision involves bad faith instead of an honest business judgment. A poor result does not always mean that someone broke the law. But improper motives, personal interests or actions outside a valid business purpose can change the analysis.
Protect your position before challenging a decision
Before taking action, review the governing rules and gather records that show how the company reached the decision. Depending on the situation, you may also have options such as negotiation or mediation. Reviewing these materials with an attorney can help you decide whether you have grounds to act and what legal options you have.