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Slinde Nelson

Don’t Let a Shareholder Dispute Put Your Business in Peril

Disagreements between shareholders can often escalate into hostile disputes that lead to the ruin of an otherwise successful company. Disputes may be over the future direction of the company, how to best downsize a company or transfer ownership, contractual obligations and a plethora of other business concerns.

However, shareholder disputes need not spell the end of a business or business relationship. There are steps that can be taken to deescalate the situation and come to a positive conclusion.

Shareholder Disputes: Arguments Protected by Law

First, it is important to recognize that the law recognizes the right of shareholders to protect their share of the companies they co-own. This includes battling with partners with whom they disagree. The law allows shareholders to fight each other for pieces of the company until there is nothing left to divide.

This bleak scenario is not inevitable, however. There are several solutions for feuding shareholders aside from a war of attrition. An experienced business attorney can mediate shareholder disputes and help resolve these conflicts.

One Solution: Avoid Disputes in the First Place

Smart business partners draft shareholder agreements that include protocol on how to resolve shareholder disputes. These agreements may include mediation or arbitration with a qualified attorney or other third party. They may also include buy-out options at the fair market price of the business or put-call options that allow one shareholder to offer to buy out their partner, who can then accept or offer the same terms to the partner who initiated the transaction.

Another Solution: Sell or Buy the Company

If a partner has already signed a shareholder agreement that does not include provisions on how to resolve disputes, he or she still has options. One partner may try to buy out the other partner, or the partners may agree to split the company into different parts. The company could also be sold in parts or as a whole or liquidated. Partners may also offer ownership of the company to employees in a buy-out.

Always Use Caution

In negotiations with a business partner, both amicable and acrimonious, proceed with caution and exercise prudence. Allowing optimism to take the place of reason in a business decision can lead to disagreements. Often, disputes between business partners cause emotional pain as well as financial pain. Cautious business partners develop shareholder agreements that provide direction on how to resolve disputes and enlist the help of a third party when disagreements arise.

If you and your business partner are at a crossroads or are just starting out and want to draft a smart shareholder agreement, contact an experienced business attorney who can mediate your disagreement and draft a strong shareholder agreement.