When a business starts, most owners aren’t thinking about future fights. Optimism is high, everyone’s aligned, and handshake deals feel like enough. But as Judge Thomas Mulroy of Resolute Systems, Inc. puts it, “Shareholder disputes are exactly like a divorce.” They are legally difficult and incredibly emotional. These so-called ‘business divorces’ can arise from fraud, self-dealing, control struggles, or simply clashing visions for the future. Left unchecked, they can cripple even successful companies.

The good news? With the right planning and dispute-resolution tools, business owners can navigate these situations while minimizing damage to both relationships and enterprise value.

Preventing Fights Before They Start

The single best defense against shareholder disputes? Strong agreements prepared at the outset.

As Janel Dressen of Anthony Ostlund Louwagie Dressen & Boylan notes: “Having documents in place is by far the best advice you can receive when you’re forming a business; if you don’t have them, you’ll spend tens, if not hundreds of thousands of dollars having the fight.”

Key documents include:

• Shareholder agreements.
• Buy-sell agreements (with clear valuation formulas)
• Operating or partnership agreements (with provisions addressing death, divorce, disability, retirement, and dissolution.)

Well-drafted buy-sell agreements are especially important. They not only clarify valuation methods but also provide funding mechanisms to ensure buyouts can be paid.

Why Shareholder Disputes Happen

“Sometimes it’s about lying, cheating, and stealing,” observes Dressen, “but most of the time, it’s really about control.”

Control disputes show up in many ways, including around:

• Use of profits, i.e., should they be reinvested or distributed as dividends?
• Business strategy, i.e, should the business expand, shrink, or pivot into new markets?
• Shareholder involvement, i.e., which shareholders should have a ‘voice’ in management?

At their core, disputes often stem from fiduciary duties. When those duties are breached, minority owners can be squeezed out, denied access to records, or locked out of profits. Many states recognize shareholder oppression as a legal claim in such cases, giving courts the power to compel buyouts or other remedies.

The Role of Money and Valuation

While many disputes circle back to money, trust and fairness generally lie at their core. Still, the resolution almost always requires figuring out a fair financial outcome. That means valuing the business which is a process that’s rarely straightforward. There are various approaches to valuation including the income, market, and asset-based methods.

Disagreements over which approach to use can swing valuations significantly. Because valuation is more art than science, experts on both sides often come back with dramatically different numbers. In fact, valuation experts often become central figures in dispute resolution. John Levitske of HKA highlights how contentious this can get: “There’s as much arguing over the value of a company, even with experts, as there is without the experts.”

For judges, this creates its own challenges. Fraud counts or emotional accusations can overshadow valuation, making it harder for courts to reach the fairest outcome. Some judges even appoint independent appraisers in large cases, though that option is costly and rare.

Dispute Resolution Options

When disputes do arise, owners have several paths to resolution, including mediation, arbitration, and litigation.

Mediation

Mediation is private, flexible, and less expensive, with a neutral third-party facilitating settlement talks. The downside? It’s non-binding unless parties sign an agreement. As Judge Mulroy advises, “The sooner you start to talk about your problems, the better chance you have of resolving them.”

Arbitration

Here, an arbitrator (or panel) makes a binding decision. It’s faster and more private than litigation, but comes with risks including limited appeals and the potential for uneven fairness. Arbitration can be especially useful when industry expertise is needed.

Litigation

Litigation is the last resort. Here, courts can enforce decisions, order buyouts, or even dissolve a company. However, lawsuits are slow, expensive, and public, often damaging goodwill and company value along the way.

In shareholder litigation, fraud and oppression are recurring themes. Fraud can include misusing company funds, hiding material facts, or self-dealing. Fraud allegations often escalate tensions; they can trigger punitive damages, scare lenders, and spook customers. Oppression claims, meanwhile, typically involve majority shareholders freezing out minority shareholders by denying dividends, excluding them from management, or withholding information. Many states have statutes specifically protecting minority shareholders from such abuse.

As Judge Mulroy cautions, “You don’t want to turn your life into litigation. You want to go back to your business; that’s where you were happiest. Get this resolved as soon as possible by any means possible.”

Final Thoughts

Ultimately, most shareholder disputes end in a separation, or business divorce, where one side buys out the other. As Megan Becwar of Dispute Economics LLC warns, the longer disputes drag on, the more they damage the business: “Every bit of this dispute is causing a disruption, and the disruption is hurting the value of the business.”

While shareholder disputes can’t always be avoided, they can be anticipated, managed, and resolved in ways that preserve both business value and personal sanity by keeping the following in mind:

1. Plan ahead with robust agreements.
2. Recognize the role of emotions in any disputes.
3. Seek early resolution through mediation or arbitration before resorting to litigation.
4. Engage valuation experts wisely and know their opinions will likely diverge.
5. Keep perspective; the goal is not to ‘win’ every argument, but to make a sound business decision that allows the company (or its stakeholders) to move forward.

To learn more about this topic view Resolving Shareholder Disputes. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about litigation.

This article was originally published here.

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