Companies with shareholders operate something like a married couple. The shareholders have a duty to the company aka family and to each other. When shareholder disputes occur, it can throw a company into turmoil, causing a myriad of problems—including potential litigation.
While interpersonal interactions are guided by personalities and, therefore, difficult to predict, it is possible to create solid foundational and environmental circumstances which can help avoid or mitigate disputes.
Here are some tips for creating an amicable culture among shareholders:
- Have a clear shareholder’s agreement drafted by a lawyer. The consequences of shareholder disputes can be serious for a company, so taking the time to outline the rules and guidelines for shareholders is vital. Ideally, such an agreement will also say how to handle major events, like adding new shareholders, buy-sell standards and an owner’s retirement.
- Hold formal meetings and keep excellent records. This is a business, and the best policy is to operate professionally. Formal meetings will increase communication between shareholders and keep them posted on goings-on and any pertinent changes with the business. This will allow them to make better informed decisions.
- Operate with transparency. Shareholders have a right to view the company’s financial accounts and records, particularly those involving a director or major shareholder. Transparency ensures that shareholders will retain confidence that no one is breaching their fiduciary duty—or be alerted when such a thing occurs.
- Regularly update the value of the business. Keeping shareholders updated on the current value of what they collectively own is just good business. It allows the shareholders to better comprehend the challenges and wealth associated with this asset.
- Ensure the buy-sell agreements include the current value of the business. It is important that these agreements include accurate info, from the price of shares to the current value of the business. This allows shareholders to make the best decision when it comes to staying or selling their shares.
Shareholder disputes can lead to litigation and cost businesses dearly. Companies that want to avoid disputes should make clear guidelines, regular and accurate communication and transparency a priority.