Infighting among a business’s owners is more than a source of stress and irritation. It can quickly distract from progress and impeded operational success to the point where shareholders end up disbanding the business entirely. Avoiding shareholder disputes is in everybody’s best interests, and one of the best ways to do that is to understand what causes them in the first place.
There are numerous reasons for shareholder disputes, but the most common include:
- Concerns that a specific shareholder, executive, or member of the board is not upholding their responsibilities to the organization, which is known as their fiduciary duty. When a person assumes a stakeholder role, they are obligated to put the business’ interests above their own. Failure to do so can lead to conflict.
- Conflicts between minority and majority shareholders. It is extremely common for minority shareholders to get a sense that their interests are not being well represented by majority owners.
- Failure to share vital information. Communication is the key to all good relationships, ad if shareholders believe that information is being held back from them or not freely shared, it is likely to cause significant concern.
- Failure to uphold contractual obligations. When a shareholder breaks their agreement or does not adhere to the organization’s articles of association, it can create chaos.
- Conflicts of interest. In all cases, shareholders are expected to act with the organization’s interests in mind rather than their own personal interest, or the interest of another organization with which they are also associated. When a shareholder is being pulled in multiple directions it can create doubt as to their loyalty and their actions.
The best way to avoid these types of shareholder disputes is to carefully craft all relevant agreements and articles of association to make each individual’s obligations and all prohibitions clear. The more transparent an organization is, the less of a chance that people will be caught off guard or suspicious of one another’s actions.
Still, even the most carefully crafted agreements can be breached and shareholders can lose faith in one another. Should disputes arise, your organization will be well served by having experts in mediation and negotiation act as arbiters and return balance. For information on how we can help you achieve all your business goals, contact us today to set up a time to meet.