All shareholders want the business they have invested in to prosper. The problem is that they may not always agree on strategies.
Shareholder disputes can be highly disruptive to a business, and it’s important to prevent them or resolve them quickly should they occur. Here are some popular methods of resolving shareholder disputes.
1. Review the shareholder agreement
Like any contract, the shareholder agreement outlines the rights and obligations of all parties. Sometimes, this document may contain the answer to the issue. Shareholders can review the agreement and follow its protocols.
However, this method relies on the strength and clarity of the shareholder agreement. If the agreement lacks specificity or is outdated, it may complicate the resolution process. Regularly updating shareholder agreements can prevent confusion and ensure they remain relevant.
2. Dialogue is key
Open communication between shareholders is crucial. Sometimes, a disagreement is no more than a misunderstanding that can be ironed out with an informal conversation. Many businesses opt to train their Human Resources (HR) staff in conflict resolution, which can also be very useful.
Having someone neutral involved can help prevent tempers from flaring and steer the conversation toward the company’s best interests. Regular communication forums or scheduled meetings can also foster transparency and reduce the likelihood of disputes escalating.
3. Litigation is a possibility
While the other methods should be tried before litigation, shareholder disputes can be resolved via the appropriate legal channels. If a shareholder has breached their fiduciary duties, they can be held to account, and the other shareholders compensated.
Litigation can also provide clarity on contentious issues, such as alleged mismanagement or misuse of company funds. Nonetheless, it’s important to remember that litigation should generally be a last resort due to its cost, time commitment, and potential to damage business relationships.
The best way to prevent shareholder disputes is to have sound legal contracts. If you are in the middle of a dispute, seeking legal guidance can be invaluable in protecting your interests and resolving the conflict effectively.