Avoid Shareholder Disputes with a Custom Shareholder Agreements

shareholders' meeting

No one goes into business thinking they will one day have a shareholder dispute. But the reality is shareholder disputes happen more often than you might think.

When two or more people own a company, it can be difficult to agree on everything – from how you should run the company to who gets paid what to when and how the company can get sold.

This is where a shareholder agreement comes in handy. A shareholder agreement is a document that spells out the rights and responsibilities of shareholders in a company. It also prevents disagreements from happening in the first place and provides a way to resolve disputes. 

If you are considering starting a business with someone else or having a company with shareholders, it is essential to have an agreement.

Continue scrolling to understand how to avoid shareholder disputes and how a custom shareholder agreement dispute resolution works:

Types of Shareholders

Shareholders are typically in two camps: those who want to have involvement in the company’s day-to-day operations and those who want to take a more passive role. The former is the “active shareholder,” while the latter is the inactive or “silent shareholder.”

Active shareholders are usually more hands-on and want a say in the company. On the other hand, inactive shareholders are typically content to let the active shareholders make the decisions and are more interested in receiving their dividends and capital gains.

Common Shareholder Disputes

However, inactive shareholders can cause problems if they feel left out of the loop or do not receive enough information about the company. The most common shareholder disputes include:

  • Disagreements about the role of each shareholder
  • Debates about how to run the company
  • Breach of fiduciary duties
  • Differences in contribution and compensation
  • Some shareholders do not get enough respect

These shareholder disputes often arise because the parties have different expectations about their role in the company. Having a shareholder agreement in place sets out each shareholder’s roles and responsibilities, as well as how the company will operate. This will prevent misunderstandings and disagreements down the road.

Avoiding Shareholder Disputes

Avoiding shareholder disputes is the key to having a successful business. You can do a few things to avoid shareholder disputes aside from those mentioned above. These include:

  • Drafting a shareholder agreement that is clear and concise
  • Being open and honest with shareholders about their roles and responsibilities
  • Developing good rapport  and communication with shareholders
  • Make sure that all shareholders understand and agree to the shareholder agreement

Taking the above steps will help you avoid shareholder disputes. If a shareholder dispute occurs, having a shareholder agreement in place will make it much easier to resolve and help prevent the conflict from escalating.

Things to Consider in Shareholder Agreements

Shareholder agreements are essential for any business but overlooked or not given the attention they deserve. When creating the agreement, talk to a business attorney Bucks County to include the following items:

  • Financial Vesting: This sets out when and how shares can get transferred or sold. It includes a buy-sell provision that allows shareholders to sell their shares back to the company or other shareholders if they leave the business.
  • Rights and Duties: This establishes what each shareholder can and cannot do, such as voting rights, board seats, and access to information.
  • Dispute Resolution: This is perhaps the essential shareholder agreement item. It sets out how disputes between shareholders will resolve disputes — through mediation or arbitration.

A shareholders agreement is a vital part of any business. Including the items above can avoid common shareholder disputes and keep your business running smoothly.

How the Attorney Can Help

If you are currently involved in a shareholder dispute or worried about the potential for one, it is vital to seek legal help as soon as possible. This is when you need a shareholder dispute lawyer to help you navigate the complex legal landscape and protect your interests.

If you are facing a shareholder dispute, contact a Bucks County business lawyer today from Olen Law to schedule a consultation. Olen Law has extensive experience helping businesses resolve shareholder disputes. We will work with you to understand the unique circumstances of your case and develop a custom solution that meets your needs. We have a proven track record of success in shareholder disputes and will work tirelessly to get you the best possible outcome.