Shareholder disputes may occur over many issues, such as suspected breaches of fiduciary duties, conspiracy and fraud. No matter the reason for the disagreement, shareholder disputes distract from doing business, consume valuable time and money and may endanger the company’s existence.
Closely held companies in Texas may be less susceptible to charges of minority shareholder oppression than those in other states, but they are not immune to disputes. If you find yourself embroiled in a potential shareholder dispute, you may have questions.
Could the firm have prevented the dispute?
Companies can prevent disputes to an extent. A carefully worded shareholder agreement that clearly defines expectations, policies and rights may help firms avoid issues. However, when people work together there is bound to be disagreement, and sometimes situations escalate. Not all disputes are avoidable.
How can we resolve the dispute?
Several types of resolution may be possible. Ideally, parties communicate directly with each other and negotiate an agreement satisfactory to all.
If those efforts fail, both sides may turn to a mediator, a neutral third party who guides discussions and satisfies all parties while allowing the company to continue operations as normal. Mediation is a solution that limits animosity so all parties can continue to work together in the future.
Some shareholder agreements stipulate the use of arbitration, in which an objective third party makes a final, binding decision. Arbitration can be more acrimonious than mediation but typically takes less time than a court case and allows the firm to keep information private.
Litigation is the most time-consuming and expensive dispute resolution method. Because it is also the most adversarial solution, it may permanently destroy the working relationship between the parties involved. Depending on the situation, commercial resolution may be a relatively speedy, cost-effective alternative.
What if we have to go to court?
Attaining a successful outcome in litigation requires a legal team that understands the complexities and unique qualities of your business and of the current dispute. Most companies do their best to avoid litigation, but it is sometimes necessary to enforce a firm’s rights or steadfastly defend its position.