When it comes to companies, shareholders are an essential component of their success. Shareholders invest their money in a company in exchange for partial ownership and the potential for returns on their investment. As owners, shareholders have a vested interest in the company’s performance and decision-making processes and can thus impact heavily its operations, performance, and overall success.
Naturally, as with any setting where a group of people is involved, disputes and disagreements are bound to crop up. Knowing how to swiftly and fairly resolve shareholder disputes could prove invaluable in preventing potential disruptions to the business’ underlying operations.
Having clear, precise, and thorough financials could alleviate many aspects that could otherwise lead to problems between different shareholders. That is why relying on professional accountants that can ensure complete tax compliance, accurate financial reporting and planning, timely audits and assurance, as well as business valuation is crucial. By leveraging the expertise of professional accounts like Howlader & Co., companies can make better-informed decisions about their future goals, overall corporate strategy and mission, and be prepared to take measures against expected challenges.
Disputes Between Shareholders Can Have Costly Consequences
The impact that shareholder disputes can have on a company is in and of itself a deterrent that could prevent potential disagreements from escalating. That is why sharing the significant consequences that could arise for the company should incentivize everyone to agree on implementing solid methods for resolving such issues.
Indeed, depending on the severity of the dispute, it can lead to high expenses, including litigation costs and lost time and revenue, even if the dispute is resolved through arbitration. Such disputes can also distract from normal business operations and potentially harm future profitability and growth. Moreover, if not managed early, a dispute can escalate quickly from minor differences in opinion to extended litigious conflicts. To prevent or de-escalate shareholder disputes, it is crucial to share potential outcomes with both shareholders and directors and develop preventive measures.
Start With A Solid Shareholders’ Agreement
Creating a solid shareholders’ agreement at the very start of your company’s life is a key method for preventing shareholder disputes. This agreement should include provisions that balance the control and decision-making power between minority and majority shareholders, break deadlocks in voting situations, and place limits on the transfer of shares. Having a dispute resolution clause in the agreement can provide clear guidelines on what the next steps should be, even in the event of a deadlock.
In addition to the shareholders’ agreement, keeping thorough records can also prevent or resolve disputes. Records such as minutes from shareholder meetings, logs of important decisions, and other relevant documents can provide vital information for determining who is right in the event of a dispute. Careful record-keeping is also a key factor that could potentially prevent disputes from developing.
Establish A Process For Mediation
Usually, when a dispute arises, the articles of association or shareholders’ agreements suggest that mediation should be the initial approach. Mediation is an alternative dispute resolution mechanism that can effectively diffuse a situation by engaging a qualified, neutral third party to resolve the issue.
However, these documents commonly overlook what the next course of action should be if the mediation fails.
Therefore, it is crucial to examine such potential outcomes and confirm that they outline adequate provisions for the situations. For instance, there should be a procedure in place to manage the practical aspects of shareholders who wish to leave the company in case no satisfactory resolution of the issue is reached.
Trying To Resolve Matters Outside Of Court
It is important to explore all available options for negotiation as a potential solution when dealing with a disgruntled shareholder. For instance, offering to buy back the shareholder’s shares at a fair price could be a reasonable approach.
Engaging in any form of alternative dispute resolution is generally viewed positively by the court as long as it’s a sincere effort to resolve the matter without resorting to expensive and time-consuming litigation.
Sometimes Legal Action Is Necessary
Generally, litigation against a fellow shareholder should be considered a last resort. This is because resorting to legal action implies that the business relationship has become so damaged that a lawsuit has become the only solution to preventing significant harm to the company. Therefore, it is crucial to have a thorough discussion with professional legal advisors and other relevant parties before taking this course of action.
Ideally, however, with a bit of advance planning, the company can take measures to prevent potential disputes from arising in the first place. However, if a dispute does occur, it is important to handle it as quickly and tactfully as possible in order to minimise any harm that may be caused.