As owners of a corporation, shareholders are supposed to have common interests and goals. Unfortunately, disputes can arise and create significant disruption. Though these issues can be addressed, it is undoubtedly better to avoid them entirely. Below we’ll discuss the most common causes of shareholder disputes, and provide some insights on proactive measures to prevent them from happening.

The single most common reason for shareholder disputes to arise is a lack of clear understanding of rules and expectations. This can be addressed before it happens with the creation of a clear shareholder’s agreement. Having an experienced attorney draft a document that includes all of the rights and responsibilities of being a shareholder, as well as the expectations that go along with it and the mechanisms for dispute resolution, then questions about conflict drivers like decision-making and share transfer restrictions have already been spelled out and there are far fewer questions and resulting animosity.

Another issue that can arise surrounds a disparate amount of effort being put forth by various shareholders. When meaningful contributions to the workload aren’t equal, it can raise resentment and a sense of inequality that is exacerbated by a reluctance to communicate. The best way to manage this issue is through open dialogue between shareholders, facilitated by regular updates on financial performance and requests for input on strategic decisions. Concerns about insufficient activity on the part of a shareholder can be addressed through these channels; this is also true of issues about misaligned interests and objectives that develop over time, valuation methods, the process for distribution of dividends, and more.  Regularly revisiting and confirming the group’s shared vision effectively ensures that everyone is still on the same page.

Leadership changes are among the most emotional and fraught topics among shareholders. This returns us to the crafting of the original organizational documents: by outlining a clear process for the selection of new leaders and how a transition will be managed, many questions can be put to rest before they are raised.

Finally, there are far too many times that organizations fail to address the concerns of minority shareholders. By creating a mechanism such as special voting rights or the establishment of a committee specifically to address this group’s needs, you can go a long way to ensure that they feel that they are being taken into consideration.

For assistance in stopping shareholder disputes before they start, consult with our experienced attorneys about creating a solid shareholder agreement.