When you first set up your dream business, you will undoubtedly be busy with all the fundamentals needed to get your company up and running. This can involve aspects such as product creation and marketing. You may even be approaching investors and shareholders to help you get your business started and avoid potential shareholder disputes.
The inclusion of various shareholders in your business also means there’s the risk of disputes arising. In this instance, you may require the expert guidance of a shareholder dispute lawyer to ensure that the issue is resolved amicably. This post takes a closer look at a few key tips that will help you prevent a potential shareholder dispute.
What is a Shareholder Dispute?
Before you learn how to avoid a potential shareholder dispute, it’s essential to understand what a shareholder is and how an issue can arise. Typically, a shareholder is an individual, institution, or company that owns one or several shares in your business. This, in turn, makes them part owners of the company.
Since this individual is a part of your company, disputes can happen when they disagree with the way the company is being managed. Disputes can also arise from disagreements about day-to-day operations and can be disruptive to the business and its reputation. Resolving these issues can be costly and time-consuming.
Strive to Avoid Disputes to Reduce Potential Issues
Since shareholder disputes can seriously hamper the usual flow of your business and make your company seem unstable, it’s always a good idea to avoid them as much as possible. Fortunately, our legal experts have a few tried and tested tips to help you with this. Here are a few of the most significant.
Tip #1: Familiarise Yourself With Stakeholder Rights
In a business environment, each party has specific rights and responsibilities that need to be adhered to. This includes the shareholders you have in your company. With this in mind, the first tip should be to familiarise all parties with the Corporations Act 2021, which governs corporate conduct across organisations in Australia.
This act highlights the specific rights and responsibilities of directors and shareholders in the local landscape. Key aspects of the act also provide several guidelines for avoiding and resolving potential conflicts. A shareholder dispute lawyer will also help you put the right measures in place to ensure a conflict-free process.
Tip #2: Establish Effective and Current Shareholder Agreements
The next tip involves establishing current and concise shareholder agreements. These agreements should always be drawn up by a lawyer specialising in shareholder activities. In addition to this, the next step is to implement clear corporate governance.
This means that the agreements should be adhered to by all parties. When drawing up a shareholder agreement, the following should be included:
- A clear understanding of the voting rights and overall decision-making processes.
- Guidelines for financial management and dividend policies.
- Legal and effective mechanisms and guidelines for resolving disputes.
Tip #3: Focus on Communication and Developing Conflict Resolution
As with other aspects of your business, it’s essential to focus on two-way communication. Keeping all relevant parties informed about key aspects of the business will minimise potential misunderstandings. You can achieve this by scheduling periodic meetings with your shareholders.
Some companies also opt to share bi-weekly updates of any potential changes to keep all necessary parties informed. Our experts also advise introducing conflict resolution techniques to help resolve potential disagreements before they escalate into bigger issues. Two common techniques include negotiation and mediation.
Tip #4: Be Clear About Your Corporate Governance
Every company owner needs to operate their business as transparently as possible. This is easily achieved by implementing clear corporate governance. A few key aspects in this regard include the following:
- Identify the roles and responsibilities of each party and ensure that all stakeholders are aware of their roles. This is essential for everyone, from employees to shareholders.
- Incorporate full disclosure about the way in which your business is run. This is done by regular reporting where necessary.
- Ensure that all aspects of your business adhere to all legal compliances and implement all ethical standards.
- Have regular board meetings and include shareholder involvement.
Tip #5: Provide Regular Reviews
Another key way to keep your shareholders apprised of what’s happening with your day-to-day business is to provide regular audits for all operational and financial aspects. It’s essential to know that these reviews and audits will give the stakeholders peace of mind that they have invested in a healthy and lucrative business. Be sure to provide your shareholders with reports of corrective measures that need to be taken for discrepancies.
Final Thoughts
No matter what type of business you’re running, the inclusion of shareholders will also come with the risk of conflict and disputes. Ensuring that you consult with the right lawyer and have the most comprehensive agreements in place will go a long way toward minimising any potential disputes. Speak to your dispute lawyer for the most effective guidelines to mitigate any risks. Use our tips to help get you started!
