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Will a shareholder dispute drag your business into civil court?

On Behalf of | Feb 25, 2022 | Business Law |

Shareholders fulfill a crucial role in a modern corporation. They invest money in the company and therefore expect to receive compensation for that investment when the business does well. Shareholders can influence company decisions and even force executive changeovers if they believe someone has not acted in the best interests of the company or its shareholders.

As an executive or founder of a company, you may occasionally butt heads with the shareholders that invest in your business. Can you potentially keep those disputes from dragging your business into civil court?

Alternative dispute resolution can help with shareholder disagreements

Alternative dispute resolution systems like mediation are useful in all kinds of legal disagreements. Although many people hear about mediation as a tool for divorcing couples, it can be equally beneficial for a business executive trying to resolve a disagreement with shareholders.

In mediation, everyone has an opportunity to speak about their perspective or needs. A neutral third party serving as the mediator will help guide the conversation and facilitate a settlement. Mediation can lead to mutual compromise and preserve your working relationship with frustrated shareholders.

Unlike litigation, mediation is typically confidential and will protect your company’s reputation from the damage possible during a public court case. Additionally, mediation can save money because you won’t require the time in court to resolve the matter.

When should you suggest mediation?

Mediation is a powerful tool, but it isn’t necessarily something you need to consider for small disagreements, like disagreements about the annual budget. It can be hard to know when a dispute is something you can settle amicably on your own and when it could cause real operational hardships for your company if it progresses.

You can potentially tell from the tone of the shareholders or the actions they threaten to take when mediation is necessary. If the shareholders have decided to file a lawsuit or have already initiated legal proceedings, you might respond by suggesting mediation first. You may also want to consider asking to add a mediation clause to your shareholder agreement so that disputes will typically go to mediation before court in the future.

Exploring all of the options for resolving shareholder disputes can help protect your business’s reputation, its relationship with its shareholders and its profit margin.