Disputes between shareholders can be time-consuming, expensive and an unhealthy distraction from the real business of running and developing your company. They can also be personally upsetting and emotionally draining. They remain common, however, because people run businesses. And the reality is that people often have different opinions on situations and the right way to handle them.
A shareholder dispute, put simply, is a breakdown in a relationship where shareholders can no longer work together. This breakdown might be due to personal or commercial reasons, but you should never underestimate the importance of resolving shareholder disputes quickly and calmly, to minimise the impact on your business. Left to spiral out of control, disputes could even mean the end of your business as you know it.
It’s very easy to think certain processes are unnecessary when everything is going swimmingly. However, at the first sign of disagreement or a rocky boat, written records and agreements suddenly become absolutely crucial to shareholder dispute resolution. In the chaos and excitement of starting a new business, paperwork can be forgotten or put to one side. But don’t be tempted to ignore it… the future of your business may well rely on you all having signed and filed the right documents.
There are two main documents you’ll want to think about.
Articles of Association contain the purpose of the company and the duties, responsibilities, rights and obligations of the members. In order to protect shareholders’ investments and relationships, this should be filed with the Registrar of Companies.
Another key document is the Shareholder Agreement, which explains everybody’s rights, so there is less room for confusion or mistakes.
It’s much harder for there to be ongoing disagreement if the paperwork spells out what expectations should be in black and white. And if everyone has signed it! Having the right documents in place means the chances of future conflict are immediately reduced.
No one wants to end up in court with the potential for negative publicity, large bills and huge amounts of time being swallowed up, so this should always remain a last resort. Shareholder dispute resolution can often be achieved without court proceedings, and direct negotiation with the help and support of legal advisers who are experienced in this area can often resolve the issue.
However, if an agreement can’t be reached then professional commercial mediation could be the next step to find a mutually acceptable solution. This can minimise business disruption and reduce the chances of a dispute becoming increasingly acrimonious. Relationships can be broken down permanently if disputes are allowed to escalate, whereas successful mediation can create a positive way to move forward. This works in everybody’s interest, including your business.
Disputes can be hard to view objectively and your experience of them is hopefully limited. By seeking advice from an experienced senior lawyer, you are benefiting from years of experience at successfully resolving disputes day in and day out. This means reaching a solution quickly and effectively and saving your valuable time and energy for more productive matters.
At Arbor Law, our experienced, senior team of corporate lawyers work with businesses and legal teams as outsourced general counsel. Not only can we support you through any shareholder disputes, we’re perfectly placed to provide advice on all aspects of company law and company structures. Get in touch to find out more here.