Introduction

Running a business is no easy task – dealing with everyday issues, keeping track of profit and loss, coming up with new business strategies for better revenue are hard enough. Business disputes are just some extra trouble that you never want to encounter; yet you cannot escape from them. If you run a small business, a single lawsuit can get you bankrupt. Fortunately, not all conflict resolutions, particularly, the shareholder disputes do not always need them. However, that is only possible when you have some competent commercial lawyers at your command at these times. Read this article to find out more about shareholder disputes and how you can approach the resolution for them.

What are shareholder disputes

A business dispute, by definition, is a disagreement arising between two parties involved in a business who signed particular terms of agreement. There are a number of ways that a business dispute can occur – shareholder dispute is one of them.

Shareholders can be anyone from the partners of the company and co-founders to board members – practically, anyone who holds some amount of company share, which fundamentally comprises of financials. Shareholder dispute occurs when the business dispute happens among shareholders of the company.

Most common reasons behind shareholder disputes

The vision of the company, the style of governance of the corporation, budget allocation – shareholder disputes occur for several reasons.

  • Contract breach:

Contracts cover just about every aspect of your business – including vendor and supplier relationships, employment, mergers and acquisitions, franchise agreements, shareholder agreements, and much more. So breach of contract happens when one party disregards the contract and breaks the agreements in it. If a shareholder breaks the agreement, conflict might arise.

  • Issues with the governing body:

Quite a few times, one or more of the shareholders may not agree with the way the corporation is dealing with a particular issue or they might have a problem with the entire governing procedure. In either of these cases, a conflict of interest might occur.

  • Oppression of minority shareholders:

Being the owner of a smaller percentage of shares, minority shareholders become completely dependent on the business decisions made by other major shareholders. The decisions often suit the interests of the majority shareholders and ignore those of the minority shareholders. Not being issued dividends, corporate funds being used to pay family expenses for the majority shareholders, failing to allow minority shareholders to inspect corporate documents, etc. can all be situations where the minority shareholders feel oppressed and can hire business dispute lawyers for bringing the majority shareholders to court.

How can you resolve shareholder disputes

A conflict, no matter where it occurs and whether it is big or small, is frustrating, time-consuming, and might as well end up being quite financially draining. It is a fact that some of those become huge issues, involving a lot of lawyers, judges, and the media – especially if you are a big organisation. However, regardless of the magnitude of the issue, in most occasions, all shareholders – majority or minority – have the company’s best interests at heart. Therefore, most business disputes, particularly shareholder disputes, can be resolved simply by negotiations and mediation, thereby saving you tons of time, money, energy, and hassle.

When such a dispute occurs, you have exactly three options – arbitration, mediation, and litigation. Dragging the matter to court, or litigation, is always kept as the last resort by any smart business dispute lawyer in Melbourne. In each of these scenarios, only well-experienced and professional commercial lawyers can guide you to figure out the best approach for your organisation, which would be the least costly – monetarily as well as in terms of time consumed and company reputation.

Arbitration and Mediation fall under alternative dispute resolution, meaning procedures to resolve disputes outside of the standard court system. You will need to engage your business dispute lawyers to conduct an early assessment of your contractual rights and any common law and equitable rights you may have to commence the process of your shareholder dispute resolution.

Mediation:

In this process, a neutral third-party named “mediator” is picked by the parties in question. This person is present not to make a decision on the parties’ behalf, but instead, in order to identify all the requirements of both parties and put them on the table. He/she simply assists the parties in dispute to discuss the matter and come to a workable resolution on their own.

Mediation is friendlier than any other dispute resolution procedures. Most businesses decide to opt for mediation to resolve a dispute when:

  • Maintaining a healthy and effective business relationship post the dispute is way more critical than to win over the other party.
  • Both parties wish to have control over the dispute resolution process and its result.

In most cases, shareholders are not enemies of each other, neither do they want to become through a dispute. Even so, they both want to have full control over the situation. So more often than not, shareholder disputes are resolved by mediation.

Arbitration:

In this process, the parties argue their cases before an “arbitrator”. This person reviews their claims and arguments, and then decides on a suitable resolution that will benefit both parties. The reference in this kind of resolution is taken from the contract drafted at the beginning of the shareholder relation between the two parties.

Subjecting the dispute to arbitration is the best option if:

  • The parties involved want to keep information about the dispute confidential,
  • The parties want the matter to be resolved as quickly as possible,
  • The business involves cross-border or international entities,
  • The dispute settlement body is itself an expert in economic relationships and decides arbitration is at the best interest of the company,
  • The parties want to settle on a part of the dispute before taking the matter to court.

Nevertheless, in order to realize the advantages of arbitration, it is crucial to select experienced arbitration counsel and arbitrators. The conflicts can be best resolved if you can hire one with insider knowledge.

Litigation:

If in an unfortunate event, either of the above methods fail to provide a solution to the conflict, the parties have no choice but to turn to the judiciary system. A court has the right and the power to resolve any kind of dispute. The type of court that will take over your issue is pre-determined by your business contract, otherwise is decided by the law at the time of the conflict.

Nevertheless, litigation will only work when:

  • Both parties involved in the dispute are located/reside in the same country, speak the same language, and share the same cultural background.
  • All the other alternative dispute resolution methods fail and reaching a reasonable verdict becomes way more important than reaching a conclusion fast.
  • The businesses are small to medium and the possibility of claiming a huge compensation by both parties is less.

Conclusion

Disputes can occur at any point of your business, and even seemingly minor business disputes can become very complicated, time-consuming and difficult to resolve. More importantly, shareholder disputes are extremely common among businesses. So waiting for the last moment to take up action is a terrible idea. It is best if you hire a licensed and well-reputed firm of business dispute lawyers in Melbourne in the beginning of your business to draw up all your contracts, cater to every problem of your organisation, and sit with you in all the important meetings to offer you advice. In case you feel that will be out of your budget, you should at least keep a good firm in your contact list so you do not have to initiate a thorough search from scratch when you are in real trouble.