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Shareholder disputes happen, but some may be prevented

| Feb 20, 2021 | Business

Wanting a business to succeed is what every shareholder wants. Unfortunately, when more than one person is involved in company business, differences of opinion are bound to occur, which can lead to various disputes. These disputes may lead to litigation unless preventative measures are in place to stop them in their tracks. Thankfully, there are several ways Texas business owners can prevent or resolve shareholder disputes without things getting out of hand.  

Create a shareholder agreement 

The best thing shareholders can do is create a shareholder agreement when their company is going through the formation process. This contract lays the groundwork for how the company will run and how each shareholder will play a role in decision making. A well-rounded agreement will include information about the balance of power between majority and minority shareholders, what is needed to break deadlocks and how to transfer shares  among various other things.  

Agree to an alternative dispute resolution method 

When disputes do arise that cannot be handled in-house, the shareholder agreement may outline acceptable resolution methods. For example, the use of alternative dispute resolution methods, such as mediation or arbitration, may be required. This will make litigation a last resort option, as it generally should be. 

Document everything 

Having a paper trail can go a long way in preventing or resolving disputes. Documenting everything is always a good idea. A few examples of records to keep include meeting minutes, contracts, bylaws, and logs of agreements and other important decisions. 

How legal counsel can help 

An experienced business law attorney can assist shareholders by helping them plan ahead. Legal counsel can assist them as they create contracts that offer the protections they need and desire, as well as various stipulations that may help prevent disputes. When disputes do arise, as they always do, legal counsel can provide further assistance with the resolution process, whether that be through an ADR method or, if necessary, litigation.