Costly Shareholder Disputes Can Be Avoided

MEDIA RELEASE

Costly Shareholder Disputes Can Be Avoided

19 January, 2010

Shareholder disputes are unnecessary, potentially costly and can have a devastating effect on a business, according to leading independent accounting firm Staples Rodway.

Tracy Hickman, a senior manager in Staples Rodway’s corporate advisory team, says the main causes of disputes between shareholders include:

• Poor communication of goals and objectives
• Different expectations in terms of remuneration, contribution to the business and exit plans
• Matrimonial disputes affecting the business relationship
• Family matters affecting the business relationship
• Poor documentation ie no shareholder agreement, board minutes or business plan.

She says in many cases, these disputes could be avoided through taking a few simple steps.

“For instance, it is essential to get the strategy right up front. Establishing clear goals and objectives using strategic planning processes should ensure that shareholders are fully aware of others’ priorities. This is important not just for business goals but for personal goal setting so that an appropriate exit strategy can be determined.”

Neil Millar, a partner at law firm Kensington Swan, says putting a shareholders agreement in place is also vital.

“The process of agreeing this document will help set out the ground rules for the relationship and ensure a road map for dealing with issues that might otherwise end in dispute,” he says.

Ms Hickman adds that open and honest communication will also assist in dealing with issues before they escalate and promote trust between shareholders.

“That trust will be further enhanced by maintaining equality in terms of financial matters, such as shareholder advances. Independent help in the form of a board member or adviser can assist with keeping the lines of communication open through facilitation or negotiation,” she says.

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