Shareholder disputes can be a challenge and a nuisance for businesses, potentially jeopardizing the stability and growth of a company. Today we explore shareholder disputes and ways to resolve them.
Before jumping to resolution strategies, it’s crucial to identify the root causes of shareholder disputes. Common triggers include disagreements over corporate strategy, financial concerns, management decisions, or perceived breaches of fiduciary duties. Recognizing the underlying issue is the first step towards finding an amicable solution.
With the exception of certain rare cases, its best to explore alternative dispute resolution methods before resorting to any sort of litigation as a disgruntled shareholder. Mediation and arbitration provide shareholders with an opportunity to resolve conflicts outside of the courtroom, saving time and resources. A skilled mediator or arbitrator can facilitate communication, foster compromise, and guide parties towards mutually beneficial resolutions. Of course, this all depends on whether the warring shareholders are willing to compromise and hear each other out. The shareholder’s state-of-mind is important to consider when exploring this option.
If diplomacy fails and disputes escalate, litigation sometimes becomes inevitable. The courts provide a platform for shareholders to present their case before a judge who can make any number of rulings on the matter.
Mediation, arbitration, and litigation are expensive, time-consuming options, where emotions can be heightened, and business relationships lost. So, why even let it get to that?
Prevention is the best option when it comes to dealing with shareholder disputes. Drafting clear and comprehensive shareholder agreements and corporate bylaws can pre-emptively address potential disputes – effectively nipping them in the bud. These documents should outline mechanisms for dispute resolution, such as buy-sell provisions, shareholder voting rights, and dispute escalation procedures. They are meant to anticipate any number of scenarios that may arise during the lifetime of the business.
We always recommend clients avoid a potential showdown with their fellow shareholders by seriously considering a shareholder’s agreement. You’ll definitely wish you had a shareholder’s agreement once the gloves come off!
Robin K. Mann, Associate Lawyer