How to Avoid Shareholder Disputes

In a perfect world, businesses would run seamlessly, shareholders would always agree on decisions, and there would never be legal actions based on claims between and among those who hold shares in the same enterprise.

Alas, we do not live in a perfect world, and shareholder disputes are unfortunately a reality in many companies, large and small. Whether the disagreement is over the direction of the business or how someone has unloaded their shares, if the case ends up in litigation, you can be sure that it will end up costing the enterprise — financially, of course, but also through an intangible yet often palpable loss of morale.

And that is exactly why you should try to avoid shareholder disputes, particularly of a litigious nature, if possible.

The number one most important thing you can do to avoid potential shareholder disputes is to draft and effectuate a shareholder agreement that lays out important details such as the duties and obligations of shareholders, voting rights — including how deadlocks will be decided — proceeds distribution, how sweat equity will be valued, how capital will be raised, and how intellectual property will be apportioned.

In closely-held businesses, especially family-run and owned, it is especially important for the agreement to delineate what should in the case of major events such as death, disability, or divorce of one or more of the majority shareholders. Taking the time in the beginning to agree on what should happen in these circumstances can save a lot of headaches in a power struggle later.

Indeed, planning ahead of time in general can allow for a faster resolution of any issues that may arise, which, in turn, allows you more time and energy for the running of your business – and that’s always a good thing.

If you’d like to know more about how you can help your business avoid shareholder disputes, get in touch today. Contact John M. Frazier or call us at (321) 255-2332 to make sure your enterprise is as protected as possible from potentially costly litigation over shareholder disputes.