Business partners can have internal conflicts over strategy and operations. Corporate leadership or controlling shareholders may also have disputes with the corporation’s other stockholders or members regarding management or alleged fiduciary violations. However, internal business conflicts can significantly affect companies, devoting time, money, and attention away from business growth. Resolving partnership and shareholder or member disputes as efficiently as possible can help your business thrive. Three critical tips for avoiding and resolving shareholder or partner disputes in Michigan include:
#1 – Create a Strong Partnership or Shareholder Agreement
A clear, comprehensive partnership or shareholder agreement and corporate governance documents like bylaws or operating agreements can help companies avoid or quickly resolve partnership or shareholder disputes. Comprehensive corporate governance documents should address issues such as the decision-making process for major decisions (e.g., financings, mergers & acquisitions, capital calls, dissolution), voting rights, buy-sell restrictions and procedures, and dispute resolution clauses that can help partnership or shareholder disputes stay out of the courtroom. The worst scenario is when an agreement allows for the company to be in a stalemate situation.
Clear and comprehensive shareholder, partnership or operating agreements ensure all parties agree on and understand their rights and obligations. Confusion over rights and rules can easily lead to internal conflicts. Furthermore, having dispute resolution procedures can help prevent internal conflicts from escalating into formal litigation or stalemating the company.
#2 – Utilize ADR Before Litigation
Many shareholder, partnership and operating agreements incorporate alternative dispute resolution provisions that obligate business partners to pursue ADR methods instead of or before resorting to court litigation. Typical forms of ADR include:
- Negotiation – Partnership and shareholder agreements can require parties to negotiate a settlement of an internal dispute in good faith before pursuing a more formal dispute process involving other forms of ADR or litigation.
- Mediation – Mediation is a more formal type of settlement negotiation facilitated by a neutral third party called a mediator. The mediator does not resolve any aspects of the dispute. Instead, they help the parties assess the strengths and weaknesses of their respective claims and suggest solutions to help them negotiate a settlement.
- Arbitration – Arbitration provides a more informal alternative to court litigation. In arbitration, the parties select a neutral third party called an arbitrator to hear the parties’ evidence and arguments and issue a decision resolving the parties’ dispute.
Courts favor enforcing alternative dispute resolution agreements as ADR can help parties resolve internal business conflicts more efficiently and with a resolution that both sides can live with.
#3 – Seek Legal Counsel to Protect Your Interests
When a dispute with fellow business partners or shareholders begins brewing, consult an experienced corporate lawyer as soon as possible. Although seeking legal counsel may seem like an escalation of a dispute, an attorney can help you understand your rights and options, allowing you to have more informed discussions with business partners or shareholders as you seek to resolve an internal conflict.
Contact a Business Litigation Attorney Today
When you have a dispute with shareholders or business partners in Michigan, an experienced corporate attorney can help you reach a fair and favorable resolution. Contact August Law today for a confidential consultation with our legal team to discuss your options for resolving internal conflicts in your business.