How To Resolve Shareholder Disputes
When you have business partners and/or shareholders, it is quite likely that disputes will arise at some point. Your business will grow, develop and evolve in new and potentially unexpected directions. With multiple parties at its helm, it is not always easy – or realistic – to be in agreement about everything regarding the company.
A dispute between partners or involving a company’s shareholders can substantially hinder or even destroy a company. Before you sign a partnership agreement or make your company public, it is important that you develop an effective strategy for handling these kinds of disputes in the event they arise. An experienced Appleton business lawyer can help you draft this document and navigate your relationships with all other parties involved in the company.
Types Of Partnership And Shareholder Disputes
Between business partners, many different types of disputes can arise. These include:
- Disagreements about each party’s financial compensation from the company
- Who will hold specific leadership positions and the responsibilities of these positions
- How to handle business setbacks and recover from financial losses
- Breaches of contract
- Accusations of fraud or embezzlement
- Breaches of fiduciary duty
- Dissolving the company
- Minority owner rights
- How to handle shareholder disputes
Shareholder disputes can sometimes look quite similar to partnership disputes, but the difference is that rather than being between two or more partners at the head of a company, they are between a company’s ownership team and the shareholders who have invested in it. A shareholder dispute could stem from a dispute between partners or it can trickle “upward” to the partners at a company. A few examples of issues that can cause shareholder disputes include:
- Accusations of wrongdoing by one or more partners
- Shareholder agreement breaches
- Disagreements about the direction of the company
There Are Legal Options
The most effective way to manage partnership and shareholder disputes is to create guidelines for dispute resolution in your partnership and shareholder agreements. Often, these agreements specify that disputes are to be resolved through arbitration or mediation, rather than litigation. This keeps resolution costs lower for all parties involved and can reduce the negative personal feelings individuals involved in the dispute might experience through litigation.
In arbitration, an arbitrator, which can be an individual or a panel of individuals, presides over the case and makes a final ruling after hearing each involved party’s side of the disagreement. Your partnership or shareholder agreement can specify how your arbitration is handled, but typically, it follows the same procedure as a trial: each side presents its evidence and argument, witnesses may testify and be questioned, and the arbitrator considers all facts presented to determine an appropriate remedy for the conflict. An arbitrator’s ruling may or may not be legally binding, depending on your agreement.
With mediation, the two conflicting parties work with a neutral third party to resolve their differences and determine an appropriate remedy for the dispute. Through mediation, the parties reach an agreement under the mediator’s guidance, rather than having the mediator determine the agreement for them.
What To Include In Your Partnership Agreement
In your partnership agreement, be sure to include the following at the bare minimum:
- Each partner’s role in the company and clear definitions of each role, responsibility and right
- How each partner is to be compensated
- Each partner’s right to withdraw from the company and the process to follow for a withdrawal
- How you will resolve disputes between partners
- The circumstances under which a relationship between partners or a partner and the business as an entity may be terminated
- Each party’s capital contributions and the relevant details about these contributions, such as how they will be made
What To Include In Your Shareholder Agreement
A solid shareholder agreement in Wisconsin is as important to your company’s success as its partnership agreement. Your shareholder agreement should include the following provisions as well as any others your lawyer advises you to include:
- How shareholder disputes will be resolved
- Guidelines for resolving a deadlock between shareholders, such as a liquidation or shareholder clause
- How shares are to be valued
- Preemptive rights, restrictions on transferring and selling shares