Businesses involving family and friends are vulnerable to fallouts and relationship tensions. But there are steps you can take to avoid deadlock.
The film The Social Network may be a few years old now, but it’s still a good watch for anyone in business. Its depiction of the rise of Facebook, and the fallout between co-founders Mark Zuckerberg and Eduardo Saverin, brings to life the problems that arise when relationships between entrepreneurs break down.
You don’t need to be a would-be tech billionaire to learn from The Social Network. Disputes among shareholders arise in a number of ways, with typical reasons including:
- disagreements over the direction of the business
- resentment that some are not doing their share of the work
- personal issues that affect the business relationship
- the death of a key shareholder and the requirements of their executors.
Disputes often become further inflamed when the parties do not take advice early about their legal rights or understand the various options for moving forward. And in businesses involving family (or friends), there are additional risks: that relationship tensions fuel the dispute, or that the dispute destroys relationships.
The classic, worst-case scenario shareholder dispute in smaller businesses is where two shareholders, or groups of shareholders, with equal shareholdings, have a bitter fallout or reach deadlock without having any mechanism to break it. This can scupper the future of the business.
To prevent this happening you have three main options, summarised below.
Focus on prevention
Recognise that prevention is better than cure and have a shareholders’ agreement or some other measure designed to avoid deadlock.
Don’t overlook this when setting up a company, however close you are to other directors or shareholders
Use what you have
If you are already involved in a dispute, or one flares up, check any shareholder agreements or articles you have in place.
They may contain a process for resolving the issue.
The last resort
In the absence of a process or mechanism, it may still be possible to find a way through.
A number of dispute resolution options are available, and negotiation or mediation often offer better routes to resolution than going to court.
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