Disputes may occur among the shareholders in your company. Such disputes may arise due to different factors and in different ways. The most common disputes that you might face in your company are disagreements regarding business decisions or minority shareholders going unheard or few shareholders claiming that they are doing the lion’s share of work.

However, if you have a clear and properly drafted shareholders agreement, then it is for all the parties to know, where they stand and what they are required to do. The clarity that a shareholder agreement brings can often help to resolve disputes early and without the need for any litigation.

Company Constitution

In the absence of a shareholder agreement if there is any breach of fiduciary duties by a director, then such disputes are resolved by the company’s constitution and the Corporations Act (Cth) 2001 (the Act).

Each member of the company is bound to observe the rules of the company’s constitution. A company’s constitution is a contract effectively dealing with internal management of the company. It is entered between:

  • The company and each member;
  • The company and each director and company secretary; and
  • Each member and every other member.

Constitution of the company also contains provisions regarding the powers of the board of directors and in the event of any dispute, it acts as a starting point to resolve such disputes. If company’s constitution is not present, the replaceable rules in the Act formulate the management of the company. The Act also lays down the provisions for formation of management structure of the company including the appointment of directors, their powers, procedures for conducting board meetings and so on.

Process

A well-balanced dispute resolution process is required for maintaining the smooth functioning of your business. The process commences right from choosing what kind of resort the parties are looking for; to any technique explicitly mentioned in the shareholder agreement.

For example – if the method resorted for resolving the dispute is mediation, then the appointment of the mediator or the place and time of mediation would be considered as a process for resolving disputes. There are various options available to all the parties for resolving shareholder dispute. The parties can either go to the Court for settlement or can settle down at an agreement by the process of Alternative Dispute Resolution (ADR).

ADR

Shareholder disputes need to be resolved quickly. Since Court attracts a lot of time and expense, the most preferred option is ADR. There are many benefits to ADR, including:

  • Time and cost saving: Any technique used under ADR process can be more cost and time effective.
  • Flexibility of processes and outcomes: It allows the parties in dispute to adopt a flexible way while following ADR. The process can be adjusted according to the needs of the parties.
  • Control: Parties to the dispute may choose the most appropriate neutral person to negotiate their dispute. They also have the right to choose the time, place, and the date according to their convenience.
  • Confidentiality: Any of the technique mentioned under ADR and used by the parties to dispute, will always remain strictly confidential.

In the event of any dispute arising from the shareholder, a person has three most efficacious options to resolve the disputes which are outlined below:

  • Arbitration: It involves an arbitrator either appointed by the parties or by the Court. The decisions made by the arbitrator are legally binding on the parties. It is considered to be more cost effective, simpler and faster way of resolving disputes than going to the Courts.
  • Mediation: It is the process where independent mediator is appointed to resolve the dispute. The mediator does not decide on the dispute, but attempts to make a fair discussion. It is a very cost effective way of resolving a dispute, while giving an option to the parties to provide an input for resolution of matters. The mediator does not impose a decision. In mediation, the outcome is entirely within the control of the parties, and not a third person such as a Judge.
  • Negotiation: Negotiation is considered to be one of the easiest forms of dispute resolution process. It is often seen that the parties to the dispute, negotiate to a resolution that is agreed by both without the need for formal mediation.

Our team at Owen Hodge Lawyers are proficient to offer advice and take all necessary steps on the client’s behalf to ensure speedy and effective resolution of any shareholder dispute. Contact Owen Hodge’s Sydney business lawyers today to discuss how we can help you.

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