Regardless of shared goals and a similar vision for a business, partnership and shareholder disputes happen. Unfortunately, in some cases, these disputes are severe enough to threaten the partnership or shareholder relationship. When these types of disputes arise, it is essential to find a resolution as quickly as possible.

What are some of the most common types of partnership and shareholder disputes?

• Allegations of misconduct
• Disagreements about management of the business
• Arguments over allocation of resources
• Disagreements concerning the terms of the partnership or shareholder agreement
• Imbalanced workload between partners

Anything can tip off a dispute in business, but these tend to be the most common reasons conflict arises.

What Can You Do to Avoid Partnership and Shareholder Disputes?

Though there is no way to protect against every dispute that arises within a business, there are things that can be done to reduce the likelihood of a conflict. At the very least, these things can lessen the impact of a dispute.

It is important that everyone involved in a company have a clear understanding of their obligations. Everyone needs to know how assets and liabilities will be managed and what they can do to avoid a dispute if they believe one is looming. It is important to have a plan in place for resolving conflict before it is full-blown and threatening a company.

Any agreements or terms related to avoiding and resolving disputes needs to be clearly outlined in the partnership or shareholder agreement. The more people know what to expect the less of a chance there is that a conflict will spiral out of control. A solid, comprehensive partnership or shareholder agreement can go a long way in clarifying and managing expectations.

Any operating agreements you create must be memorialized in writing. All too often, partners work together casually and assume that their pre-existing friendship will be enough to build their business on. Even larger corporations with a board of directors tend to sometimes give too much credence to personal relationships.

No matter your trust and comfort level with each other, it is important to have documents in place that govern your working relationships. If a disagreement should arise, there needs to be something concrete to help you through resolving it. Keep in mind, even with the best intentions; people tend to have different recollections of things that were said or intentions behind what was meant during conversations.

A lot of disputes can be avoided by putting agreements and terms in writing. Doing so also means the subjects of any agreements are discussed, clarified, and understood by all of parties.

What Can You Do to Make Sure the Terms of an Agreement are Clear and Easily Understood?

There are several things you should do early on in the life of a business or at any time it is needed to make sure everyone understands the terms of a partnership or shareholder agreement. Strong foundational documents will go a long way in preventing damage from conflict.

One of the most important things you can do is hire an attorney who has experience drafting and reviewing shareholder and partnership agreements. An attorney can help you create documents that are specific to the needs of your business and ensure that documents address all material aspects of a business’ operations.

The best partnership and shareholder documents reduce the frequency and intensity of conflict and ensure that everyone with an interest in the business understands his or her obligations. It is also important to make sure terms of an agreement are prepared in accordance with state and federal laws, as well as any industry regulations.

Implement a Dispute Resolution Program and Review It as Necessary

One of the most important parts of your partnership or shareholder agreement is the description of the dispute resolution process. Those involved should negotiate how conflict will be dealt with and agree on a standard procedure for dealing with disputes when they arise.

There should be a formal dispute resolution process in place, as well as an understanding among shareholders and partners of when it needs to be used. Not all disputes are serious enough to be escalated to a formal resolution process, but there needs to be one in place for when it is necessary.

Ideally, partners and shareholders will agree to use an alternative method of dispute resolution, such as mediation when disputes arise. Parties should do everything they can to avoid litigation and resolve the matter “in house.” Mediation is confidential and a great way to preserve relationships when disputes arise. It is also less expensive and less time consuming than litigation.

Other tips for resolving disputes between shareholders and partners include:

• Directly negotiating and addressing the problem with partners or interested parties. It is important to keep issues from escalating and to keep the matter as private as possible, but there are times when it is better to bring in other people (staff, other shareholders, etc.) to deal with an issue.
• Not taking disagreements personally. Conflict is a part of business and if everyone is able to handle the matter professionally it should be able to be resolved one way or another.
• Being willing to negotiate in good faith and try to reach a resolution that is truly in the best interest of the company.

One of the best things you can do if you are involved in a partnership or shareholder dispute is to keep things in perspective. At the end of the day, everyone shares the same goal of keeping the business going with minimal distractions and conflict. The more you can do in advance to build a foundational or peaceful resolution the better. You should always anticipate disagreements – even in the best of circumstances – and do what you can to manage them before resorting to formal dispute resolution.

Working with an attorney who has experience dealing with partnership and shareholder disputes can make it easier to identify potential problem areas and mitigate them before they blossom into full-blown problems. An attorney can also assist you in working through any disputes that have already arisen.

Neal Brickman
www.brickmanlaw.com