- Alternative Approaches to Shareholder Disputes

Alternative Approaches to Shareholder Disputes
by: Rainier Policarpio

Shareholder Disputes

This is for a fact; even ideal corporate structures have the possibility of resulting into serious conflicts, especially among the company’s shareholders. Due to the many circumstances and/or vital corporate decisions to be made, such good relationship between the owners may deteriorate with the passage of time. Consequently, the company’s economic profitability may begin to subside and may lead to its closure.

Corporate disputes may be categorized into three:

• Management Disputes – these arguments pertain to a company’s daily operational dealings such as contract engagements, supplier transactions, human resources supervision and premises control, among others. Major disagreements usually arise in other important matters, which include mergers and company takeovers.

• Personal Disputes – these may arise on issues involving succession and divorce

• Management Misconduct – these commonly take place when one or more of a company’s executives got involved in various types of misbehaviors. Examples of these are loan approvals to the directors, illicit diversionary tactics regarding the company’s finances, unauthorized transactions and management exclusions.

Shareholder disputes also occur in small business enterprises, unlike what most people think that it only happen to large corporations. Although, these crises may seem to be unavoidable, legal experts may provide important assistance in order to resolve them in a lawful manner.

Legal Dimension

The federal and state corporate laws contain certain provisions that generally define the rights and obligations of each company owner. Depending on the kind of established company, each shareholder has his own privilege and duties. Yet, due to these intricate provisions, it is recommendable for business entities and shareholders to appoint at least one attorney to give his advice on the proper way of resolving corporate truces and misunderstanding.

Usually, these cases are being result in court litigations. However, because of the long and more expensive way of finding solution to shareholder disputes compel most individuals to settle their cases out of court by engaging into alternative dispute resolutions.

Alternative Approaches

The two most common of this alternative approaches are:

• Arbitration – In binding arbitrations, the parties involved agree to appoint an independent third party who will then decide on the disputed issues. Usually, the chosen arbiter is a former judge or an experienced attorney with expertise in shareholder dispute resolution.

Typically, all parties have no right make their appeals on the arbiter’s decision. Its effect may be considered as if it was decided under a court litigation procedure. Therefore, they must abide by the decision to avoid further legal impediments.

• Mediation - This process pertains to a settlement discussion in the presence of a former judge or a qualified mediator. In this meeting, all the parties discuss the disputed issues until they come up with some form of agreements that end their case.

This type of alternative dispute resolution is almost similar to arbitration. Yet, the main difference is that, in mediation, the affected parties decide. The mediator only serves a guide or an adviser in the procedure. After an agreement has been reached, the parties will have to sign a contract that contains the settled issues.

On the other hand, because of several statutes that must be addressed before engaging in these procedures, it is necessary indeed to hire shareholder dispute attorneys. This is to better understand the process and its implications. A competent legal adviser to provide assistance will definitely enable all parties to result in favorable and just settlements.