Shareholder Disputes

What are Shareholder Disputes?

Corporate relationships should be professional, civilized, and harmonious. But, different views between shareholders on business strategy, human resources management, and other aspects of running a corporation can give rise to disputes. In short, every disagreement within a corporation can lead to a shareholder dispute.

Typical Shareholder Disputes

Shareholder disputes can stem from the following disagreements:

 

  1. Shareholder agreement violation

Shareholder agreements deal with the day-to-day business, including the relationships between the shareholders, defining shareholders’ rights and responsibilities, and the decision-making process. In some cases, shareholders fail to uphold their obligations, breaching the agreement, which leads to a dispute.

  1. Breach of fiduciary duty

Owners do not have a fiduciary duty to the company. Their interests are in line with the corporation. On the other hand, board members owe a fiduciary duty to the company and shareholders. Directors and officers must act in the interest of the corporation and its owners. The dispute occurs when they breach such a duty.

  1. Conflicting views on operational issues

Managing a corporation is challenging. The management must successfully coordinate multiple factors to steer the company’s direction to the trajectory of growth and profits. Sometimes the board members disagree on expenditures, personnel, relocation, and other matters related to everyday business, resulting in a dispute with shareholders.

  1. Minority interests

Minority shareholders hold less than 50 % of a company, meaning that majority holders decide on most issues since they own more than half of the company, which puts them behind the steering wheel. However, minority shareholders have rights, as well. They may feel majority made an important decision without regard to their interests, which can lead to a dispute.

  1. Conflicts between majority and minority

In addition to rights, minority shareholders have responsibilities too. In some cases, majority shareholders consider their interests are at stake because of the minority standing in the way of pivotal changes in the trajectory. Majority shareholders own more than 50% of the company (typically one or two large shareholders who jointly have more than half of the company and consequently majority management and voting rights). A majority can have different visions on business strategy, so whenever the minority questions their wisdom, they see it as an obstruction.

Shareholder Disputes Litigation

Shareholder dispute litigation is a financially draining and time-consuming procedure involving attorneys and court filing fees that can reach astronomical figures. Because of numerous participants and a large amount of evidence, the process can drag on for years, negatively affecting day-to-day operations and reputation.

Resolving Shareholder Disputes in Mediation

Mediation is an out-of-court dispute resolution method that offers many advantages litigation lacks – it is a neutral, confidential, time and cost-effective way of dealing with shareholder disputes.

The parties choose the mediator (a former judge or an attorney) by signing an agreement. Mediators are neutral, meaning they cannot resolve the dispute by issuing a decision, giving legal advice, or proposing solutions – they facilitate negotiations between the parties (shareholders or shareholders and management).

Unlike vindictive litigation, mediation helps parties bridge their differences in a neutral and non-adversarial environment. Mediators motivate parties to negotiate, settle and reconcile. The mediation is time-effective (lasting several weeks or days) so shareholders can continue corporate activities without unnecessary delays.

Confidentiality is one of the crucial traits of mediation. Anything shareholders disclose during the sessions will remain out of public sight. In corporate life, confidentiality is vital. It extends to future litigation, as well, in case mediation ends without settlement.

The mediation process consists of four stages:

  1. Introduction – the mediator introduces themselves and explains the procedure;
  2. Opening statements – the parties give opening remarks regarding the dispute;
  3. Private sessions (caucuses) – the mediator holds private conversations with each party separately;
  4. Joint session – parties and the mediator gather to negotiate the matter, bringing offers and counteroffers.

Successful negotiations lead to settlement. The parties sign an agreement that is binding and enforceable.

Choose the Commercial Mediator You Can Thrust

Hal Wotitzky is a Florida Supreme Court-certified mediator, serving since 1994.

With decades of experience mediating disputes between partners, limited partners, shareholders, and joint venturers, Mr. Wotitzky can help you negotiate the most contested shareholder disagreements.

His dedication and persistence in facilitating disputes are unmatched among competitors.

Feel free to call today to schedule your consultation.