Shareholder disputes involve disagreements regarding how the business is managed. Common issues that crop up in these working relationships include control, profits, and how management decisions are made.
Navigating a shareholder dispute can be challenging. Making the wrong move can land the dispute in court or harm your business.
Hiring a lawyer is essential. ContractsCounsel, an online legal marketplace, makes hiring a lawyer for a shareholder dispute easy as it connects you with vetted, experienced lawyers who will protect your interests and rights.
What are the Main Causes of Shareholder Disputes?
By knowing what’s most likely to contribute to shareholder disputes, you can prevent arguments between parties or deal with them more effectively if they occur. Leading shareholder disputes include:
- Breaches. Shareholders might think that there’s money mismanagement or conflicts of interest at play. They’ll claim a breach of fiduciary duty concerning management decisions.
- Exclusion. Some shareholders might feel left out of decisions.
- Finances. Without a transparent financial record, parties could argue over the company’s finances, such as citing unfair dividends. Some might want to keep the money in the business to allow it to grow, while others might want higher dividends.
- Contracts. The parties might argue over terms and clauses in the shareholder contract, such as the exit or termination processes.
- Deadlocks. If shareholders can’t seem to reach an agreement on an issue, this could stall the company’s operations.
How Can You Prevent a Shareholder Dispute?
By putting a strong foundation in place, you can prevent disagreements that threaten the company’s wellbeing. Here are some ways in which you can avoid disputes in the future.
Keep Detailed Written Records
You should organize and store all important documents, such as shareholder contracts, meeting minutes, and bylaws. They will come in handy when you need to resolve tensions that can escalate into disputes.
Draft a Clear, Legal Contract
One of the most important things to do to prevent a shareholder dispute is to have a transparent shareholder contract in place. This prevents misunderstandings over the terms and clauses. A shareholder agreement should contain the following information:
- Shareholder authorities: This clearly specifies the voting rights to prevent deadlocks.
- Share transfers: This prevents parties from selling shares to third parties by including a right of first refusal and compulsory sale clause in the contract.
- Non-compete provisions: Serving to protect the company, this section states that shareholders agree to not compete with the business for a duration of time after the transferring of their shares.
- Dispute resolution processes: The contract should clearly define the method to follow should a dispute arise. This can include mediation, arbitration, or litigation.
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Maintain Open Communication
You should keep all shareholders informed of changes and important information, as this will prevent them from feeling excluded. Regular communication will give you the reassurance that your goals are still aligned, and it will encourage all parties to address misunderstandings so they don’t become full-blown disputes.
How Do You Resolve a Shareholder Dispute?
Shareholder disputes don’t have to land you in court. There are ways to resolve them without litigation, which should always be a last resort for a dispute.
Alternative Dispute Resolution (ADR) methods involve negotiation, mediation, and arbitration. Clients prefer these to litigation because they’re less time-consuming and expensive.
Negotiation
This involves communicating directly with the other party so that you can resolve the dispute. It’s usually a first course of action as it’s the least formal of all ADR methods. How it works is that you and the other party meet to discuss the problem and negotiate to try to find a solution. The onus is on both of you to keep the conversation civil and empathetic.
Mediation
If you can’t reach an agreement via negotiation, you can hire a third-party mediator to facilitate communication between you. Instead of delivering a decision on how to move forward from the dispute, a mediator lets you both come up with solutions to the problem.
Arbitration
An alternative to mediation is arbitration. It involves hiring a third-party, neutral arbitrator to listen to both parties’ cases and review the presented evidence. The arbitrator will deliver a final, binding decision on how to resolve the dispute. Since it’s more formal, it can be an effective way to resolve conflicts in more serious cases or those involving poor communication.
If the above ADR methods don’t work, you might have to consider litigation.
Other Ways Shareholder Disputes are Resolved
There are various legal remedies for shareholder disputes. These include:
- Buyouts. One shareholder decides to buy the other shareholder’s shares. Buyouts can be a way to put the conflict to rest.
- Injunctions. This is a court order to stop an unlawful or offensive behavior by one party, such as if they’re misusing funds.
- Damages. If one party is experiencing financial losses, they might seek compensation from the other party.
Do You Need to Hire a Lawyer for a Shareholder Dispute?
Hiring a lawyer is a good way to navigate a shareholder dispute in a less stressful way, while ensuring your interests are protected. However, it’s a misconception to think that you should only hire a lawyer when the situation is serious, such as if you’re dealing with fraud or breach of contract.
A lawyer can help you throughout the dispute-resolution process.
- They’ll review all your documents to strengthen your case. They can also review your shareholder contract for any red flags or loopholes.
- Even before a dispute arises, they can draft a watertight shareholder contract to prevent disagreements in the future.
- A lawyer will explain all your rights and duties, and any vague or confusing information in your contracts.
- They’ll assist you with mediation or arbitration.
- Should your case go to court, a lawyer will represent you during litigation.
- A lawyer ensures that your actions and decisions are legal and in line with all regulations.
Do you need a professional lawyer for a shareholder dispute?
Hire a lawyer on ContractsCounsel. All lawyers on the platform are vetted. They provide skill and expertise to help you navigate stressful and challenging shareholder disputes.
