Shareholder disputes can occur in any business, especially when there are disagreements between individuals who hold ownership stakes. If you’re involved in a dispute with a fellow shareholder, it’s important to understand your options and how to move forward.
Mediation or negotiation
One of the first steps in resolving a shareholder dispute is attempting mediation or negotiation. Mediation is a process where a neutral third party helps facilitate a conversation between disputing parties to find a common ground. Negotiation, on the other hand, allows shareholders to directly discuss their differences and come to an agreement. These methods are often quicker and less expensive than litigation.
Shareholder buyout
Another option in a shareholder dispute is a buyout. This involves one shareholder purchasing the other’s shares in the company, effectively ending the dispute. A buyout can be a mutually beneficial solution if both parties are open to it. The price of the shares is typically determined through a valuation process. However, both sides should ensure the terms are fair and transparent.
Filing a lawsuit
If mediation or a buyout isn’t successful, filing a lawsuit may be necessary. In California, shareholders can file a derivative lawsuit if the company has been harmed by the actions of other shareholders. Shareholders may also file a direct lawsuit for breach of fiduciary duty or violations of shareholder agreements. Lawsuits can be costly and time-consuming, so they should be considered only when other avenues fail.
Arbitration
Arbitration is another legal option. In this process, an arbitrator—rather than a judge—hears the case and makes a decision. Many shareholder agreements require disputes to be settled through arbitration, which can often be faster and less formal than going to court.
In the event of a shareholder dispute, it’s important to explore all available options. Whether through mediation, negotiation, a buyout, or legal action, addressing the situation early on can help prevent it from escalating.