Resolving Shareholder Disputes

Owning and running a company is no easy task, which makes it all the more important to ensure that all company shareholders are on the same page with regards to the direction of the company, its long-term goals, and decision-making processes. However, even if all parties involved agree on these things, it doesn’t mean that disputes won’t arise in any given shareholders agreement. This blog post examines the common types of shareholder disputes and offers strategies for preventing and resolving them as quickly and easily as possible.

What are Shareholder Disputes?

Shareholder disputes are disagreements that arise between shareholders of a company. Disputes are common even when a shareholders agreement has been signed. Shareholders agreements are legally binding contracts, signed during the process of incorporation. Shareholders agreements outline a specific set of rules and practices that govern how the company will be run, how the rights of the shareholders will be protected, and the process of exiting the company.

A few examples of rights given to shareholders under these agreements include the right to sell shares, receive dividend payments, vote on company-related issues, nominate directors, purchase shares, and receive payment following liquidation. Despite shareholders agreements often covering a range of contentious topics, disputes can still arise unexpectedly and cost a lot in time and resources.

Types of Shareholder Disputes

While this is not an exhaustive list, some examples of shareholder disputes are:

  • Breach of the shareholders agreement
  • Lack of trust among shareholders and breaches of fiduciary duties
  • Disagreements over whether to dissolve the company
  • Disagreements on the direction or management of the company
  • Suspected fraudulent or illegal activity within the company
  • Differing perspectives on board control or voting procedures
  • Selling shares
  • Dividend distributions

Preventing Shareholder Disputes

While it’s better to prevent shareholder disputes than to deal with them once they arise, it’s often not possible to entirely prevent conflicts. However, there are several steps you can take to improve your company’s chance of avoiding conflict. Preventing shareholder disputes often starts with good communication, a business plan, and a comprehensive shareholders agreement that is drafted with the assistance of experienced lawyers.

Part of this process includes planning ahead for possible disputes and discussing resolution protocols. Avoiding disputes can be achieved when the shareholders know and document their respective duties and responsibilities. Additionally, continuous communications, documenting decisions, and business planning are always the key. A well drafted shareholders agreement has an inbuilt flexibility to adapt to changes in the business environment and responsibilities of its shareholders.

Resolving Shareholder Disputes

At Hazan Hollander, our experienced commercial lawyers are familiar with a variety of shareholder disputes and can assist you in the process of negotiation and understanding how you can avoid disputes before they arise. The benefit of early advice is that it reduces your risk of disputes with your shareholders. Part of this process includes creating a well drafted and flexible shareholders agreement. In those instances when a conflict between shareholders is unavoidable, Hazan Hollander will assist you in achieving the best and quickest possible resolution.

There are many ways in which shareholders disputes can arise. By addressing them early, you can avoid costly legal action. With careful consideration of legal rights and understanding of shareholders agreements, disputes can be resolved—leaving you free to focus on your business. To get in touch with our team of experienced commercial lawyers, you can call us in Melbourne on (03) 8538 1676, in Sydney on (02) 9233 4266, or alternatively, submit an online enquiry below:

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