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How to prevent shareholder disputes 

On Behalf of | Aug 31, 2023 | Commercial Litigation

Your company’s shareholders may not be involved in the day-to-day operations, but they are an integral part of the business. They can vote on certain corporate actions and can elect directors. Further, they have the right to directly influence the company’s direction. 

Thus, when disputes arise between shareholders or you and one of them, your business can be disrupted, leading to losses, and its reputation may be damaged. 

It’s vital to implement measures that prevent or control such disputes. Here are three approaches that can help:

Keep a balance between minority and majority shareholders

Conflicts between minority and majority shareholders can be common. If majority shareholders disrespect minority ones, possibly by not inviting them to a meeting, not acknowledging their opinions or implementing provisions without clearing with them, conflicts may arise. 

Further, if some clauses in your shareholder agreement favor majority shareholders, minority ones may have an issue. For example, it may be problematic if majority shareholders can sell their shares using different terms from minority ones.

Having an agreement and policies that provide a balance between minority and majority shareholders can help you avoid costly disputes.

Recognize your shareholder’s opinions

Your shareholders will have ideas regarding how the company should run, how to increase profits and so on. You should recognize their opinions and discuss how to implement those that benefit the company. 

Plan ahead for disputes 

Chances are a shareholders dispute may arise in your company. While it’s beneficial to have measures that prevent them beforehand, you should plan for them. It will be best to have conflict resolution methods in your shareholder agreement. This way, you will know how to approach a matter before it escalates and, in turn, protect the company from disruptions. 

Shareholder disputes can negatively impact your company. If a conflict occurs, it will help to get legal guidance to make informed decisions.