Legal Strategies for Managing Board and Shareholder Disputes

Corporate directors and shareholders want their company to succeed to the fullest extent possible in a harmonious manner, an achievement equally borne of business savvy and sound business law practices. The vision and path for how to reach this place though can diverge greatly and lead directors and shareholders into complicated, heated disputes over how best to achieve the desired result. When shareholder demands fundamentally conflict with the desires of the board of directors, real problems emerge; and legal action often follows to resolve the disagreements. In fact, depending on which shareholder is involved in the conflict and the nature of the dispute, these situations can significantly hinder the company’s ability to make strategic decisions.  This article explores strategies to help reduce the likelihood of shareholder disputes and how to respond if they do arise.

Heading Off Potential Disputes

The sources of shareholder-related disputes are numerous and can run the gamut from accusations the board has a conflict of interest to complaints about the payment of dividends. Regardless of the cause, these disagreements can quickly disrupt regular operations in any business. Having a plan and set of procedures that anticipates this almost inevitable complication will at the very least allow board members to reply more quickly and in a more cohesive manner. Incorporating provisions in the articles of incorporation and/or shareholders’ agreements that speak to how these disagreements should be resolved is one effective way to help de-escalate these situations and bring about a less contentious compromise. Mediation is the favored option because using an independent neutral facilitator to help form a settlement helps keep existing relationships intact. Further, if mediation fails, a mechanism to allow the disgruntled party to exit the situation (perhaps through a buyout) is another method of cutting off the need for expensive litigation.

Even in the absence of a formal plan in company operational documents, a discussion outlining day-to-day operations, who the strategic decision-makers are, and how a shareholder may act in certain situations is another way to avoid or contain shareholder disputes.

Responding When Disagreement Happens

Having a plan in place does not completely eliminate the risk of shareholder disputes, and board members need to be prepared to address and respond to these situations. The first step in this process is knowing the legal rights and responsibilities of all parties involved. Bringing in an experienced business law attorney at the outset of such disagreements is critical to ensure the company interests are fully protected. Depending on the complexity and structure of the company, a single person who is also an employee of the company could hold legal rights in multiple categories, such as the director and shareholder. Understanding the amount of authority and power an individual holds will help board members determine how to continue normal operations while the dispute is ongoing, as well as whether past board actions may expose the company to liability. An experienced business law attorney can best assess the company’s options in the event of a shareholder dispute and provide appropriate guidance regarding corporate governance matters.

Speak with a Business Law Attorney

Responding to shareholder unhappiness is a complicated situation that can produce potential legal repercussions. Working with a business law attorney to address these disputes early in the process is the best way to produce a satisfactory resolution. The Atlanta law firm of MendenFreiman handles a variety of business-related issues for their corporate clients and are available to discuss your questions and concerns. Contact us to schedule a consultation.





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