Disputes among Shareholders ( or Members, Partners or other owners of a business) can cause costly disruptions to your business. Taking steps to prevent these disputes is crucial for all companies. Strategies for resolving shareholder disputes reduce the costs and disruptions from disagreements. A North Carolina business attorney can help. They devise effective strategies to avoid shareholder disputes.
Why Do Shareholder Disputes Happen?
Developing strategies to deal with shareholder disputes begins with understanding why shareholders disagree. Situations that can lead to conflict between shareholders include, but are not limited to:
- Conflicts of interest with the company and fiduciary duties
- Disagreements about company operations or the direction the company is taking
- Interpersonal conflict and friction
- Engaging in illegal or unethical activities
- Breach of the shareholder agreement
- Disagreements regarding compensation for minority and majority shareholders
- Desire to terminate the shareholder relationship
- Disagreements regarding the distribution of duties, responsibilities, and workload
- Shareholders disagree on whether to make large expenditures or incur debt
Shareholder disputes cause numerous problems. Problems caused by shareholder disputes include:
- In a small business, shareholder conflicts can damage personal relationships.
- Shareholder disputes can create liability for the company.
- Disputes among shareholders can damage the company’s reputation.
- Conflicts among shareholders can result in significant financial losses.
Preventative measures are the best way to minimize the potential for shareholder disputes. The best time to take these measures is when you form your company, before you begin operations.
Strategies for Avoiding Shareholder Disputes
The strategies for preventing shareholder conflict vary depending on the company. However, common strategies used to prevent shareholder disputes and resolve conflicts include:
- Regardless of the size or type of business, you need a written shareholder agreement. A comprehensive shareholder agreement should also include how disputes among shareholders are resolved. Possible methods to resolve disputes include negotiation, mediation, and arbitration. The goal is to avoid litigation whenever possible.
- Balance majority and minority interests. Include provisions in the shareholder agreement requiring all shareholders approve specific decisions.
- Create a dispute resolution clause determining how a deadlock is broken if you do not have a majority shareholder.
- Include clauses restricting how company shares are transferred. Give the company the first right of refusal for stocks sold.
- Keep detailed business records. Thorough records can help prevent disputes and expedite resolution if a dispute arises.
- Require shareholders to agree to non-compete and non-disclosure agreements when they purchase stocks.
The best way to prevent shareholder disputes is to have a strong shareholder agreement to prevent conflicts. A skilled business lawyer should draft the shareholder agreement. An attorney tailors the shareholder agreement for the company’s needs. The attorney ensures the agreement complies with the laws governing companies in North Carolina.
Using a template you find online for shareholder agreements could lead to more problems. Template shareholder agreements might not contain the required elements to prevent conflicts. The result could be an increased risk of shareholder disputes.
As soon as a dispute arises, seek legal counsel. Many shareholder disputes can be resolved by looking to the shareholder agreement. Even so, legal advice from an experienced business attorney is invaluable in these situations.
Contact Our North Carolina Business Attorneys for a Free Consultation
Even with comprehensive shareholder agreements, disputes happen. Our business attorneys have extensive experience in all aspects of business law. We can help you resolve shareholder disputes quickly to save time and money. Contact Patrick Harper & Dixon, LLP, for your free case evaluation with a lawyer.