Preventing and handling shareholder disputes

On Behalf of | Sep 22, 2022 | Firm News |

As a shareholder in a company, you want to see the company grow and succeed. Most shareholders share this same vision; however, it is natural that sometimes, shareholders will have different views on how to achieve the business goals.

Shareholder disputes can be costly, and not just financially. They can disrupt business operations, tarnish the business’s reputation and threaten the entire future of the business.

If not immediately addressed, a shareholder dispute can drag out for quite a long time, and the longer the dispute goes on, the worse it usually gets. Shareholders can become more locked into their positions, making the chance of an amicable resolution less likely.

Your shareholder agreement

The two best ways to prevent shareholder disputes is to have a strong shareholder agreement and take advantage of dispute resolution techniques.

An ideal shareholder agreement should make sure everyone has a voice, including both majority and minority shareholders.

A dispute resolution clause is one of the most important clauses in a shareholder agreement. Common dispute resolution options are arbitration and mediation.

Arbitration

Arbitration involves each side arguing their side of the dispute in front of an arbitrator, who then decides in favor of one side or another. It is like a courtroom proceeding, with the arbitrator’s role being similar to that of a judge.

Mediation

Mediation is another option. It involves a chance for both sides to speak with each other and try to resolve the situation. The point is to facilitate communication between both sides and allow them to work out their own solution.

Additional considerations

A dispute resolution clause should also contain information on how to handle certain situations, such as transferring shares or what to do in the event of a tie.

A shareholder agreement is drafted when the business is started, usually with the help of an attorney. Once the agreement is in place and the business is up and running, keeping detailed records can also help prevent shareholder disputes, since detailed information will be readily available.