Tips for navigating shareholder disputes

On Behalf of | Aug 28, 2023 | Business Disputes, Business Litigation, Outsourced Business Counsel |

Disputes among business shareholders may be unavoidable. These disagreements happen for various reasons, such as profit distribution, company direction or management decisions. A fair and reasonable solution should be the desired outcome, but it can take a lot of work, effective communication and commitment to resolving the dispute.

Here is a short list of tips for overcoming the issue:

  1. Read and understand the shareholder agreement: This legal document should identify the rights and obligations of each shareholder. It should also outline a process for resolving disputes. These agreements should be written by attorneys, so it is often advisable to consult with a lawyer to get an accurate understanding of the agreement.
  2. Communication: The parties involved in the dispute (or their representatives) should have a candid discussion about their concerns and views on the matter. Dialogue can help focus on the sticking point and all the sides to work towards a solution.
  3. Use a neutral third party: The shareholder agreement will likely outline arbitration, formal negotiation or mediation if the parties cannot resolve the matter independently. While mediation builds towards a mutually acceptable agreement, binding or non-binding arbitration weighs the dispute’s facts and presents an opinion much like a judge would.
  4. Consider a buyout: If the parties cannot find a workable solution, it may make sense for one party to buy out the other. A buyout will involve additional negotiation but may suit each party’s goals. These deals can be structured in a variety of ways.
  5. Revise the shareholder agreement: Businesses change over time, and it may be necessary to revise the agreement to reflect the changes. Updates can eliminate ambiguities and unaddressed issues that are now pressing. It also can be a proactive solution to avoiding future disputes.
  6. Litigation: One party may not negotiate in good faith, or the gulf between the parties is such that a judge must rule on the case. Some believe that litigation takes too long or is too expensive. Still, it offers such benefits as closure on the dispute, sets a precedent for future disputes and signals a party’s willingness to defend their interests.

Weighing your options

Each shareholder dispute involves its own circumstances, so it is often crucial to consult with a business law attorney, even if the parties are doing informal negotiation or reading and understanding the shareholder agreement. They can offer insights based on the contracts and circumstances of the case.