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Three tips for preventing shareholder litigation

Those who the Detroit area own shares in a favorite company naturally expect that the company will be run properly and will be profitable. If a company is incorporated, and shareholders disagree on issues related to the company, it can lead to shareholder disputes that undermine the profitable operations of the business. The following are three tips for preventing shareholder litigation.

Execute a comprehensive shareholders’ agreement

As soon as your business is established, you can execute a comprehensive shareholders’ agreement to avoid disputes down the road. There are a variety of important clauses to include in a shareholders’ agreement.

For example, it can help to include a clause mandating minority shareholders who wish to sell their shares do so on the same terms as majority shareholders. How tied votes will be addressed can also be included in a shareholders’ agreement. Also, a shareholders’ agreement can include a clause limiting the transfer of shares. All of these clauses can help prevent shareholders’ disputes.

Keep comprehensive and accurate records

Comprehensive and accurate record-keeping can also help prevent shareholders’ disputes. The information in these records may help expedite the resolution to the dispute.

Some examples of important records to keep include minutes from shareholder meetings, decision logs, bylaws and other types of documents. Thorough documents can help mitigate the fallout from the dispute or even prevent a dispute altogether.

Choose mediation rather than litigation

Mediation of a shareholder dispute is often preferable to litigation. Mediation is generally quicker and less costly than a traditional trial. In addition, because both parties are involved in creating an agreement through mediation, the ultimate resolution may be more satisfactory to all involved. Mediation may also be a way to preserve good business relationships.

Learn more about business litigation

These tips may come in handy when it comes to avoiding shareholder disputes. However, sometimes litigation is inevitable. If so, it can help to understand your rights and options. Our firm’s business litigation page may be a good resource for those who want to learn more about this topic.