Closely held companies depend on the owners working as a team to make decisions that are in the best interests of the company. In many cases, that happens without any issues, but there are sometimes when the owners can’t agree. At that point, a deadlock can start to negatively impact the company.
Disputes commonly occur over hiring, distributions, debt, contracts, or strategies to move the company forward. Resolving these disputes can sometimes leave shareholders of a closely held company frustrated, particularly if their voting rights are evenly divided or if there isn’t a clearly stated way to break ties.
What are the options when shareholders can’t agree?
If shareholders can’t agree, they should review the company’s operating agreement, bylaws, and shareholder agreement to determine what rules or guidelines exist. In some cases, these documents will contain voting rules, valuation methods, or dispute resolution procedures that provide a clear path forward. There may also be terms that allow one owner to buy out another, which may be a potential resolution.
What happens if shareholders can’t come to an agreement?
If shareholders can’t solve a problem through internal procedures, shareholders may consider negotiated buyouts, arbitration, mediation or requests for court intervention. Each of these options comes with benefits and risks, so shareholders should ensure they understand exactly how the business will be impacted before acting.
It’s possible that shareholders will have to set temporary guidelines for the company while they’re working through the dispute. This could include rules for handling payroll, paying bills, preserving records or maintaining business relationships. The goal of these is to ensure that the company can continue to move forward while the shareholders determine how to address the issues in question.
The priority during all shareholder disputes generally must be protecting the business. Deadlocks during disputes don’t mean that a company has to close, but it does mean that each shareholder should take a step back to evaluate what’s best for the company. Working with a legal professional with the company and potential resolution options is likely necessary, given all that is at stake.