As a shareholder, you own part of the company and therefore have a vested interest in its success. However, if you have a business partner, there may come a time when you disagree about a company decision. Disagreements can be about minor day-to-day decisions or about significant operational decisions. Importantly, a disagreement between shareholders with a 50/50 split in a company can be a roadblock to moving forward. Neither party can force their partner to sell their shares, so alternative ways to resolve the dispute are required. This article will explain how to approach a dispute between shareholders with a 50/50 split.
Shareholders Agreement
When a dispute arises, the starting point is the company’s shareholders agreement. The shareholders agreement sets out:
- key clauses relating to shareholders; and
- protocol for decision-making.
Most shareholders agreements will have a dispute resolution clause outlining the procedure for resolving a dispute. This typically requires shareholders to pursue a form of alternative dispute resolution before commencing any court proceedings. Alternatively, the dispute resolution clause may require one party to sell their shares to the other to resolve the dispute.
If you already have a shareholders agreement, look for a dispute resolution clause to see how you can resolve your dispute. If you do not have a shareholders agreement, it is best to have a lawyer assist you in drafting one to ensure that the dispute resolution clause suits your needs.
Communication and Common Goals
It can be challenging for 50/50 shareholders to maintain communication in a dispute. Maintaining open communication can encourage both shareholders to express their concerns and the desired outcomes to try and resolve the dispute. Identifying common goals that you once had for the business may aid you in resolving the dispute by finding common ground and working towards a resolution. You should try to promote transparency as 50/50 shareholders so you can work the dispute out amicably. Maintaining communication and being clear about common goals that serve the best interests of the business in the long term can help provide a solid framework for dispute resolution discussions.
Continue reading this article below the formAlternative Dispute Resolution
Alternative dispute resolution is available in 50/50 shareholder disputes. It can be beneficial to try negotiation and mediation if communicating with each other is difficult.
Negotiation
Negotiation is a form of alternative dispute resolution, typically involving the shareholders meeting to:
- explain their positions; and
- come to a compromise.
A successful negotiation involves the parties compromising on their positions to achieve a desired resolution. Though it may not be the exact situation that each party initially wanted, a compromise will help resolve the dispute.
If negotiation is not successful, one shareholder can buy the other shareholder’s shares. In other words, one shareholder will part with the company, thereby eliminating the dispute. In this situation, both shareholders will need to agree on a price for the shares. The parties may also decide to sell the entire company to a third party and go their separate ways. Alternatively, they may split the company and its assets in half.
Mediation
Similarly, mediation is a form of alternative dispute resolution involving a shareholders’ meeting to try to resolve the dispute. The primary difference between negotiation and mediation is the presence of an impartial third party. In mediation, a third-party mediator is appointed to assist the parties in coming to a resolution. Parties may choose to nominate a mediator or can have a mediator appointed to them by the Law Society of their state.
Court Proceedings
Where a company does not have a shareholders agreement or the shareholders are unable to resolve the dispute through negotiation or mediation, you and the other party may look to the courts to help resolve the matter. Pursuing a dispute in court is a timely and costly process for all parties involved. If solving the problem without court interference is possible, this is an optimal solution for both shareholders.
If you choose to proceed with the court system, usually the outcome will be that the court:
- orders one shareholder to buy out the other at a determined price; or
- decides on the direction of the company. For example, the company may be wound up.
Above all, both parties should be aware that the court’s order is binding. This means that you must comply with whatever the court decides, even if this is not either party’s desired outcome.
This guide provides key information on how to manage a business dispute as quickly and cost-effectively as possible.
Key Takeaways
A dispute between shareholders with a 50/50 split may be challenging to resolve. If there is a shareholders agreement, you should follow the dispute resolution procedure set out in the agreement to resolve the argument. In the absence of a shareholders agreement, it is wise to try to negotiate or mediate an outcome for the dispute. There are many ways to resolve a dispute between shareholders with a 50/50 split, including one party selling their shares to the other or both parties selling the company to a third party.
If you have further questions about shareholder disputes, our experienced dispute resolution lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A useful starting point to resolve your 50/50 shareholder dispute is to consult your shareholders agreement. This should contain a dispute resolution clause that can direct you to the next steps.
In general, you should keep court proceedings as a last resort. This is because taking your dispute to court is costly, time-consuming, and may not prompt your desired outcome. Instead, consider improving communication with the other party and undertaking alternative dispute resolution.
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