Is a Shareholders’ Dispute Threatening to Disrupt Business?

Is a Shareholders’ Dispute Threatening to Disrupt Business?

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It’s common for friends to decide to go into business together. However, as experienced commercial lawyers will tell you, it’s equally common for friends to fall out when they become business partners. Businesses are often started by friends who take a shared idea or vision forward and turn into a profitable venture. The initial excitement of starting up a new business often results in the partners turning a blind eye to the problems that may occur in the future. This is especially true when young and inexperienced entrepreneurs embark on a new business.

There is always a possibility that things may turn sour or the partners may have divergent visions for the business. In other words, it’s important to have a set of watertight business documents and an agreement that provides guidelines on various aspects of business. In fact, it’s fairly common to come across businesses that lack governing documents in cases of disputes. Most shareholders tend to consult a legal professional after the problems start rearing their heads. It’s a good idea to have a business agreement or governing documents in place because you will have a well-structured reference that contains solutions to contentious issues that may arise.

Shareholders and partners should be careful that any steps taken to resolve the dispute should not contravene their obligations and responsibilities to the business and to other shareholders. Governing documents can specify the correct method to fund exits or buy-outs in case of disagreements. There are often situations where a compromise or a mediated solution doesn’t work. For example, one party may hold very strong views and may refuse to budge from their standpoint.

In the event that a negotiation (to resolve a shareholder’s dispute) fails, then the following options are still available:

  • Request to institute proceedings for breach of contract or agreement
  • Request to institute proceedings for ‘oppressive conduct’. In broad terms, this refers to force or coercion to sell your shares and so on
  • Request to institute proceedings to wind up the company (to close it down) under the Corporation Act.

Sometimes, the business dispute may involve the use of all three options mentioned above.

Many businesses flourish and transform into profitable ventures. The problems usually begin when one (or more) shareholder begins to find the business less rewarding compared to other partners. For example, one of the partners may feel that he or she is bringing far more value to the business than was agreed previously. There are always stresses associated with a successful business or with one that is struggling; there are always challenges and tensions that may lead to disputes between partners or shareholders. Acrimonious relationships between shareholders and partners can impact the business adversely.