A shareholder agreement must satisfy all involved parties. It must also be designed with dispute resolution in mind. While you certainly hope for the best-case scenario in business, you must also have a plan in place in the event the worst-case scenario decides to make an appearance. To ensure your bases are covered, Entrepreneur offers the following information on handling shareholder disputes.
Make sure all shareholders are protected
Navigating the rights of majority and minority shareholders can be tricky. That’s why you want to ensure that both groups are well protected by specific provisions. For example, minority shareholders obviously want some authority, which includes things like voting and passing resolutions. Conversely, majority shareholders want proper support so they’re not carrying the brunt of financial burdens. You’ll also need to include language regarding what happens if the business is sold, which directly impacts both groups if a decision is made to part ways.
Know how to handle possible issues
There might come a time when there is a disagreement among shareholders and management. Should this occur, have language in place that clearly spells out the proper dispute resolution steps. For example, statements about negotiations prepare shareholders for discussing the dispute at length. You should also have a mediator in mind, who might need to settle the dispute once and for all. Even if you never encounter any such disputes, it’s still recommended that you plan for the future.
Clearly define contributions
Financial disputes are quite common in the business world. Make you, your team, and all shareholders are fully apprised of their current contributions so you’re all on the same page. You should also have standards in place regarding shareholder loans, including important information like repayment terms. The more you account for future variables, the less likely you are to encounter a major dispute.