Resolving 50/50 Shareholder Disputes in Florida

Resolving shareholder disputes can be challenging and complex, particularly when there is no shareholders’ agreement in place that defines the shareholders’ rights and remedies. In corporations that are owned 50/50 by shareholders and lack a shareholders’ agreement,  the main risk is  a voting deadlock on important issues, which may ultimately lead to dissolution of the corporation.  Accordingly, here are some tips for avoiding a deadlock between shareholders.

Start Your Business with a Shareholder Agreement

The easiest way to resolve disputes with 50/50 shareholders is to start the business with a well-drafted shareholder agreement. The well-drafted shareholder agreement should include a provision that outlines how to resolve voter deadlocks. These provisions often require shareholders to pursue alternative dispute resolution options before filing an action in court  or seeking dissolution of the corporation.

Among other dispute-resolution mechanisms, a dispute-resolution clause may also require one party to sell his or her shares to the other shareholder to resolve the dispute, i.e., a buy-sell provision.

When a Dispute Arises, a Shareholder Should Attempt to Address and Resolve It Early

With any type of dispute, a shareholder should try to intervene early in an effort to address and resolve an issue.  Early intervention is a key aspect to successfully resolving an issue and preventing a dispute from arising. Likewise, if an issue has risen to the level of a dispute, addressing the dispute proactive may prevent the dispute from festering. Typically, intervention requires communication between shareholders and, if necessary, communication that involves a neutral intermediary to enhance or filter communication so that it’s productive.

Alternative Dispute Resolution Clauses

Alternative dispute resolution clauses are commonplace in shareholders agreements and serve as an option to resolve disputes that are already palpable. Customary examples of alternative dispute resolution clauses include procedures such as mandatory mediation, mandatory arbitration, an independent appraiser to determine a valuation dispute, and a third-party neutral that can break a voting deadlock.  The positive of having a dispute resolution clause is that it allows the remedy to resolve a dispute to be more predictable, manageable, efficient, and affordable than litigating a case in court.

Litigation of Shareholder Disputes

When shareholders can’t reach a compromise on material issues, and using alternative dispute resolution is not agreed upon or has been unsuccessful, litigation may be visited as a last resort.  The downside of litigation is speed (slow), cost (high), and risk (uncertain).  When shareholder disputes are litigated a common outcome is for one shareholder buy out the other.    If the same result can be accomplished without the added time, expense, and uncertainty of litigation, however, shareholders should carefully consider the option.

Contact a Florida Attorney Seasoned in Handling Shareholder Disputes

If you’re in the midst of a shareholder dispute, or can see one coming on the horizon, you should speak to a Florida Bar Board Certified Business Litigation attorney. Contact Rabin Kammerer Johnson today at 561-659-7878 to schedule an initial consultation.

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