Shareholder disputes can cause a wide range of problems. They can strain business relationships, disrupt a company’s operations, and interfere with or jeopardize long-term business goals. No matter what the disagreements are over, it is important to resolve them quickly and effectively in order to protect the business and its future.
Below, our friends from Volpe Law LLC offer insight into how businesses can address and settle internal conflicts before they get out of hand and start damaging the business.
Why Disputes Arise Amongst Shareholders
Unclear roles, unmet expectations, and major shifts in a business are common sources of disputes among shareholders. Some common disputes often involve:
- Breach of Duties: Claims of neglect, self-dealing, and misconduct by other shareholders often trigger legal actions.
- Profit Distributions: Tensions can build quickly when shareholders feel a company’s returns are unfairly allocated.
- Decision-Making Control: Power struggles often arise when key decisions aren’t clearly delegated or agreed upon.
- Conflict Over Exit Strategy: When it comes time to value shares or sell interests, differing opinions can create barriers to getting these things done.
Business issues are often caused by shareholder agreements that are not well-drafted, and without a well-drafted agreement, they can be difficult to resolve.
Importance Of Clear Agreements
Having a well-drafted, written agreement is one of the more effective ways to prevent shareholder disputes. A business attorney can help draft agreements that outline responsibilities, rights, and dispute resolution methods. Having these documents from the onset of starting a business and regularly reviewing them can provide clarity and reduce friction when disagreements arise.
It is important to have provisions in written agreements, such as buy-sell clauses, decision making procedures, and conflict resolution steps. These can act as a blueprint for when conflicts emerge.
Resolution Options
There are several ways to move forward when shareholder disputes arise: negotiation, mediation, arbitration, and litigation. These options all have different timelines, costs, and levels of control over the outcome. Choosing which approach is best depends on how serious the dispute is and the willingness of the parties involved to try to cooperate. Long-Term Business Protections
Protecting Your Business Long-Term
Conflicts in business are inevitable, but the presence of conflict doesn’t have to mean the end of a business relationship. To the contrary, when addressed constructively, some disputes can lead to better communication and stronger governance going forward. Taking proactive steps to avoid conflict, such as regular meetings, legal review of agreements, and transparent reporting, are things that can help reinforce trust among shareholders.
If your business is already facing serious disputes, it may be necessary to seek legal guidance, support, and possibly, representation in court from a shareholder dispute lawyer. In an ideal world, a business attorney will help to avoid conflict with early intervention strategies.
Even though shareholder disputes do not involve physical harm, in the context of your company’s health, it is akin to a personal injury, some of which can be devastating. The same way you would seek the help of an attorney right away if someone injured you or someone you care about, consulting with a business lawyer early on is important to prevent accidents from happening.