When you have a business with shareholders one thing you have to watch out for is a dispute between the shareholders and directors. This can arise if the shareholders don’t get much in the way of return for their investment and they blame the director for mismanagement. It is essential to have commercial lawyers who know all about your business to try and reduce the damage as much as possible and get things back on track.
The consequences of not clearing the problem up are serious and can even be disastrous.
They can include:-
- Loss of reputation and potentially, lost custom and income for the business
- A great deal of emotional trauma for those involved
- Loss of control for the director/s
- Possible legal action against the company if it is found the director/s are doing the wrong thing
- Litigation that can drag on for many months and cost more than you can pay
- Dissolution of the business
Some disputes are simple and can easily be solved by firing the director if they have done the wrong thing. But others can be a great deal more complex and include many different factors that the directors cannot be held responsible for, such as a market downturn.
While it is incumbent on the directors to always act in the best interests of the company, sometimes this does not happen, or they decide on a course of action that ends up not being the best option, even though they thought it would be to start with. Everyone makes mistakes, but when it is an ongoing problem of several years duration something must be done.
In a business it is essential to be transparent and have everything written down and signed, with copies kept for those who need them. It is also necessary to be honest in all your business dealings so that you can develop a reputation as an ethical business.
Trying to solve any dispute before litigation is the wisest course of action. Once it goes to court, there will be a large cost and a long time for everyone to suffer. However, sometimes it’s the only possible solution.
Another option that can be tried is mediation, where a neutral third party offers to help the two come into some kind of agreement about the matter. Such consultants are often able to facilitate discussion and the problem is resolved by the participants to everyone’s satisfaction. If this result is not achieved, often a court of law is the only way to bring resolution. It may be that the business has to go bankrupt, the directors are replaced by others more able, or the business is put into receivership.
While these are not ideal, at least the problem is addressed and satisfaction gained by the wronged parties.