Shareholders have the right to participate in corporate decision-making and take actions that can chart a path of success for the company. However, there are cases in which disputes among shareholders can prevent the company from moving forward. In some of the most egregious cases, these disputes stymie business growth and threaten the long-term viability of the company.
Knowing how shareholder disagreements can stall progress is essential to breaking the logjam and protecting the corporation or closely held business. The experienced Manhattan business law firm of Levy Goldenberg LLP can devise practical solutions to prevent and resolve these problems.
Why Do These Disputes Happen?
A shareholder is any individual, business, or institution that owns at least one share of a company’s stocks and, with it, enjoys the right to vote on certain decisions that affect the company. On the surface, a dispute may look and sound like a disagreement over finances or other business-related matters. But disagreements are often more personal.
A dispute may arise because of:
- Frustrations with the personalities of the company’s leaders
- Competing worldviews on what the company is or what it should be
- Power struggles and turf wars that are inherent to running any business
These disagreements can manifest themselves in various ways, such as:
- Voting deadlocks
- Claims of fiduciary mismanagement
- Allegations of discrimination or unfair behavior
- Complaints over unethical conduct or policy violations
- Poor financial management of the business
- Lawsuits
How Can These Disputes Stop Business Growth?
Shareholder disagreements are not inherently bad, and can actually be healthy for the growth of a Manhattan company. It is normal for shareholders to have spirited debates over the direction of a business and to work out their disagreements through internal corporate processes. However, there may come a point when the dispute is so bad that it begins to divert the company’s focus and resources from productive growth.
If there are enough shareholders divided into factions, and the decisions or issues at stake are significant, then disagreements over the outcome of those matters could hinder development. For instance:
- Plans to expand the company into new geographic territory get delayed or abandoned
- A potentially profitable new product line never comes to fruition because the company can’t agree on how to develop it
- Contracts and business relationships that desperately need review or modification are ignored
- Large transactions and expenditures are never made, so vital new resources are never acquired
- Hiring and promotion decisions stall, depriving the business of essential leadership
Major business decisions require agreement among shareholders. So when a Manhattan company is paralyzed by indecision and nobody wants to compromise, productive operations can grind to a halt.
Tips for Preventing and Resolving Shareholder Deadlocks
There are several options both for preventing unproductive shareholder disputes and resolving them if they arise:
- Draft thoughtful and effective shareholder agreements: The shareholder agreement governs all of the matters that can potentially lead to a disagreement, so starting with this contract is key. Many shareholder disputes are based on competing interpretations of this document, which makes clarifying the shareholders’ rights and obligations important.
- Maintain open and regular communication among shareholders: Shareholders should regularly meet to decide matters and there should be transparency in all financial decisions affecting the company. Ensuring unimpeded access to corporate finances is a critical component of this.
- Require strong dispute resolution methods: One particular element that must be included in your Manhattan shareholder agreement is a dispute resolution clause. Requiring shareholders to submit the matter to mediation or arbitration is a good first step in reaching a solution without the time or expense of a lawsuit.
- Allow for exit strategies if needed: Shareholders who simply cannot move past their disagreements with other members of the organization should be allowed and encouraged to exercise their exit rights. Buy-sell agreements are foundational to facilitating exit strategies that will allow the company to move forward.
- Litigation: Ultimately, if a dispute cannot be properly resolved in the ways listed above, a lawsuit may be inevitable. But even if your Manhattan business does get entangled in litigation, mediation and effective negotiations still offer viable tactics that can settle the matter.
Helping Your Company Overcome Growth Obstacles
At Levy Goldenberg LLP, we want to see your business thrive and survive its inevitable growing pains. Learn more about how we can help you devise strategies for preventing and resolving shareholder disputes. Connect today with our Manhattan office to learn more.