A shareholders’ dispute can cause business operations to grind to a halt. Disputes can be costly both in time and money, and can lead to full-blown litigation. You can try to prevent such disputes from arising by including the following three clauses in your shareholders’ agreement.
Three clauses to consider including in your shareholders’ agreement
you may want to include in your shareholders’ agreement a clause that gives minority shareholders the right to approve certain decisions before you can act on them. Minority shareholders often feel like they do not have much of a say in decision-making compared to majority shareholders. A clause like this can help alleviate this type of disparity.
One issue that can lead to disputes is a vote that ends in a tie. For this reason, you may also want to include a provision in your shareholders’ agreement that describes the dispute resolution process that will be implemented should a vote end in a tie. Note that you will only need this type of provision if all shareholders hold the same number of shares, meaning there is no majority shareholder.
Sometimes it is desirable to place limits on how shares can be sold. This can avoid disputes that may arise should shareholders be allowed to sell freely, making it more difficult for other shareholders to know who owns shares and how many shares they hold.
Preventing shareholders’ disputes is important to your business
When a shareholders’ dispute arises, it can spell long-term disaster for your business. You likely want to prevent such disputes from occurring. A well-drafted shareholders’ agreement can be the first step in hopefully avoiding predictable shareholders’ disputes.