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Proactive steps for preventing shareholder disputes

On Behalf of | Oct 11, 2021 | Business & Commercial Law |

When two or more passionate shareholders have different ideas about the best interests of the business, a dispute might seem inevitable. Shareholder disputes, however, can quickly become time-consuming and costly, draining the company of precious resources. To avoid these disputes, shareholders, business owners and executives can implement some proactive strategies.

Tips for dispute prevention

Some of the time-worn methods for avoiding or minimizing shareholder disputes include:

  1. Writing a practical, legally sound dispute resolution clause into the shareholder agreement.
  2. Incorporating protections for minority shareholders. These could mean provisions to ensure that minority shareholders can clear a decision made by the majority vote.
  3. Entering mediation early. Mediation is a solid way to prevent litigation, but it sometimes comes too soon, when tensions have already reached a boiling point.

As mentioned in the first step, the company’s shareholder agreement will play a key role in disagreements. The document should address everything from how to resolve voter deadlocks to the sale of shares. When working with counsel to draft and implement the contract, shareholders should consider factors such as the company culture and the business’s objectives to incorporate dispute resolution tactics that make the best sense for the organization.

Effective prevention: worth its weight in gold

As the old axiom goes, an ounce of prevention is worth a pound of cure. Implementing these strategies as soon as possible as a means of dispute avoidance is nearly always better than implementing them as dispute resolution. Otherwise, the problem could detract from operations and profit margins. Internal disputes not only disrupt business functions but also create an intangible atmosphere of strife that, over time, can eat away at the strength of a venture. Taking the time to look forward and lay down some preventative measures is well worth the energy and expense if it means smooth sailing in the future.

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