Shareholders are important to your business, as their job is to make decisions that keep your business profitable and successful. Over the life of your business, it is natural for shareholder disputes to develop sometimes.
While you cannot prevent shareholder disputes, there are many things you can do to try to prevent them.
Making your best effort to prevent shareholder disputes is a good idea. Shareholder disputes are expensive, lengthy, stressful and usually end up doing more harm to your business than good.
Money and time
Shareholder disputes that cannot be resolved will end up in a courtroom, meaning you will be paying court costs and attorney fees. Additionally, the time you spend litigating your shareholder dispute is time away from your businesses, meaning you are likely losing out on revenue.
A shareholder dispute can be resolved privately or through a litigation alternative, such as arbitration or mediation. While arbitration is typically less costly and time consuming than litigation, it can still cause everyone involved to adopt a litigious mindset.
This means that each sides gets more entrenched in their positions and “winning” rather than focusing on resolving the dispute.
Your professional reputation can suffer because of a shareholder dispute as well. No matter which side ultimately prevails, you might never recover from your business or professional name being tarnished.
You could be viewed as someone who cannot keep their business running smoothly, or who chooses a courtroom fight when things do not go their way, even if these perceptions are not accurate.
Your shareholder agreement
The best way to prevent shareholder disputes is to get ahead of them by having a solid shareholder agreement in place. Ideally, the shareholder agreement should be put in place when you start your business.
Having good documentation is also a good way to reduce shareholder disputes. Many disputes begin because shareholders have received incorrect or inaccurate information.
Referring to records such as meeting minutes, agreements or contracts when a question arises can help ensure everyone is on the same page. That does not mean a legitimate dispute cannot still arise, but you will not waste your time on a dispute caused by one side having incorrect information.
The benefits of mediation
Consider using mediation to resolve disputes rather than arbitration or litigation. Mediation is a less-adversarial method of resolving disputes and is designed to put parties in a problem-solving frame of mind.
Mediation involves a neutral third party who guides parties to a resolution but does not take one side over the other or make orders the way a judge does.
Using these strategies can help you avoid shareholder disputes so you can focus on running your business. Experienced business attorneys can advise you on additional ways to prevent disputes and help resolve them when they arise.