Helpful Tips to Prevent a Shareholder Dispute

New York residents working for private closed corporations - or limited liability companies for that matter - know just how destructive shareholder disputes can be. Shareholder disputes often present difficult issues, regardless of business size or industry type. The disputes can also drain resources and result in bad company decisions. They may also cause shareholders to lose focus on the company and not see threats from competition. For these reasons, even the strongest business may ultimately suffer because of shareholder disputes.

Shareholder disputes are especially challenging in technology firms, since many are still new and in the high-growth phase. These firms are also fragile, since struggles between the owners can cause major setbacks or even cause the breakup of a business.

What Causes Disputes?

Shareholder disputes are often emotional, especially with smaller companies. In some situations, shareholders use their rights under state and federal laws to fight over issues until they are left with nothing. In other situations, two 50-percent owners may consistently refuse to compromise. This makes decision-making nearly impossible and threatens business survival.

There are a few common reasons for shareholder disputes. Sometimes a shareholder may wish to terminate the shareholder relationship. Other times minority shareholders may disagree with the decisions of the majority. Minority shareholders may also feel decisions made by controlling shareholders are illegal or unfair, sometimes leading to requests that the business be dissolved.

Successfully Managing Disputes

There are several helpful points to keep in mind when handling shareholder disputes. Entering into a shareholder's agreement is a good starting point. It is also wise to consider including a dispute resolution clause in a shareholder's agreement.

Getting to the root of the problem is also essential. There may be one shareholder or group of shareholders at the heart of the problem. Listening to their concerns and figuring out their motivation for the dispute can go a long way towards finding a solution.

Although the legal system is not always required to resolve shareholder disputes, a business facing the threat of a shareholder dispute can nonetheless benefit from the advice of experienced business attorneys. They can provide solid legal guidance on the appropriate steps that should be taken.