How to resolve disputes between Shareholders, Business partners, Directors and Officers

Most business relationships start with the best intentions. You probably decided to go into business together with other persons with the common goal of establishing a successful business venture. Businesses are rarely a one-person endeavour. They are usually joint enterprises, relying on different people with different skills to help drive growth and set goals. Unfortunately, business relationships do not always proceed as planned. Sometimes, business owners, Directors, Partners and Shareholders don’t see eye to eye. A little disagreement could end in disputes that will require careful and calculated steps to resolve.

Like any relationship, external pressures, concerns about finances and a lack of clear direction for the future can lead to disagreements. Disagreements over company policies and direction, a lack of role clarity, and even allegations of misconduct or legal wrongdoing can cause strife amongst the leadership of a company. The situation is dicier because business partners and officers of a business entity once had a harmonious relationship. Before the dispute, they were privies to the secrets and strategies of the business. A dispute not probably managed can therefore be disastrous for your business and all the individuals involved.

Trying to reach a consensus through dialogue is often the best route to a resolution but if that is not possible, you may have to consider legal. Understanding the alternatives, the legal remedies available and whether these are likely to succeed are important aspects of resolving your business disputes. Before you rush to a court to resolve your disputes, there are other important resolution mechanisms to consider. These remedies often depend on the nature of the legal relationships between the parties. They include:

Negotiation

The first step is to make out the appropriate time to discuss your dispute. Find the time to sit down and have a calm, reasoned conversation about the issue without any distractions. An after-hours meeting, a relaxing dinner, or a simple conversation on a workfree morning over coffee would suffice. Making this effort will have a positive effect on the situation and steer you in the right direction. During this discussion, focus on the solution, not the problem. Your goal should not be to win the argument or beat the other parties. If all you do is talk about the problem, you will further irritate one another and cast blame on each other. For the long-term relationship to survive, you need to focus on what is best for the business. Talk about the outcome you want and that you believe is best for the business. Consider how you will persuade the other party to adopt it.  Be open to contrary opinions. Be specific about how you can get from point A to point B. By doing so, you can focus on a pathway forward instead of dwelling on where you have been. This forward vision will create a more positive atmosphere and environment. This more beneficial setting will create more opportunities for a resolution.

Provisions in the contractual documents

The agreements you have entered into at the outset is important to understand the obligations, rights and remedies of all the parties involved. Such agreements, if drafted by a corporate business attorney, will often contain certain provisions aimed at resolving disputes. For example, the agreement will generally include deadlock provisions which apply when the directors cannot reach an agreement or where one party exercises a right of veto. These provisions might require you to resolve disputes by referring the matter to an independent third party who can be required to act as a mediator, an expert or an arbiter – and may require one shareholder to transfer its shares to another in certain circumstances. Another instance is the service contract for directors which might empower you as shareholders to remove a director subject to the payment of compensation for loss of office.

Mediation

If you and your partners or directors or officers cannot see eye to eye, and the dispute worsens, you should consider hiring a mediator to help you resolve it. Many standard operating agreements contain a provision requiring that, if there is a disagreement regarding a certain set of issues, the partners must hire a mediator to help you resolve those issues. A mediator, or neutral individual, can assist the partners in several ways.  First, a mediator can help both sides present their opinions or positions in a non-confrontational way. This exchange will likely result in a much different, and more productive, outcome.  Second, a mediator usually will have experience with these types of disputes. Partnership disputes are common. An experienced mediator will allow you and the other side a fair chance to present your opinions and proposed solutions. An experienced mediator will also be able to draw on other disputes he or she has dealt with and suggest helpful and effective strategies or solutions.

Litigation

If you are convinced that the matter cannot be resolved amicably, approaching a court is an effective option. But you would have to be strategic about it. Even if you are been sued. You must have an accurate and detailed record of your conduct and that of the other parties. Witness evidence and contemporaneous evidence will also be important. This could include records of meetings or letters issued at the time, setting out matters of concern. It is also important to approach a business attorney for advice.

Unfairly prejudicial acts by shareholders

Where certain shareholders are acting in a manner that is unfairly prejudicial to the interests of other shareholders, it may be possible to challenge that conduct by way of an application to court based on alleged unfair prejudice. In a successful case, the court has broad discretion on the remedies that can be granted to provide relief for the shareholders whose interests have been prejudiced, which could include granting orders to prevent the shareholder from acting in a particular manner or to require the buyout of the shares held by shareholders who have been prejudiced by the behaviour in question.

Dissolution

There are times where a dispute cannot be resolved and you are better off with an amicable separation. For example, if you and your partners do not share the same vision for your business any more, you should consider terminating the partnership and going your separate ways. Terminating the relationship may be complicated and require a lot of effort and discussion regarding the division of the assets of the business and other items. However, once you and the other parties recognize and accept that the situation is unworkable, you might embrace the process of splitting up. Operating a business where the partners constantly disagree over most decisions will negatively impact your relationship, your personal life, and the business itself. Sometimes, it is better to cut your losses and move on.

Take Away

Once a dispute rears its ugly head and it appears to be heading towards an ugly outcome, you should contact an attorney. Getting legal help sooner rather than later could be critical. An attorney can help you understand your rights and obligations, and to what extent the other parties have similar rights or obligations.

The most expedient resolution mechanism depends on your unique situation. You may need to follow a protocol in your agreement stating that mediation is necessary, or that certain other requirements must be met. Alternatively, you may need to offer to buy out your partner. Terminating a relationship if your agreement forbids it may expose you to significant liability and litigation costs.

You should never take matters into your own hands. That may create additional problems and difficulties you should avoid. The right attorney can guide you through this process. An experienced attorney will explain what you can do, the advantages and disadvantages of each option, and the likelihood of success of each path.