Corporate Disputes: Types and Resolution

Shareholders disputes / Partnership disputes is a normal occurrence in a company where more than one person invested money in the business.
It is normal for conflicts to arise as shareholders and partners are not expected to see eye-to-eye in every situation.
As a result of the many circumstances and important decisions to be made, the good relationship between the investors may deteriorate with time.
The problem arises when the disputes are not resolved in the right manner, it will consequently affect the company’s profitability.
Once the profitability of a business subsides, it can lead to bigger problems and next thing you know, the company has closed its operations.

Types of Corporate Disputes

Corporate disputes are generally classified into three categories:

  • Management Disputes – These conflicts arise from the company’s daily operational dealings like engagements, contracts, supplier transactions, premises control, human resources supervision, etc. A lot of the major disputes arise from important issues like business mergers and company takeovers.
  • Personal Disputes – These refers to conflicts that arise from personal matters that may affect the company’s operations. This includes issues like where the two parties may fight for the rights to the shares of the company, and successions, where conflicts on inheritance may affect the division of shares within the company.
  • Management Misconduct – This type of conflict occurs when one or more company executive, director or shareholder gets involved in different kinds of misbehavior. Some examples would be loan approval to the directors, illicit diversionary tactics regarding the corporate finances, unauthorized transactions and management exclusions.

Smaller businesses like Limited Liability Companies (LLC) and Limited Partnerships are not exempt from these types of disputes. As long as there is more than one owner in the company, conflicts are bound to happen.

Both federal and state laws provide certain provisions that define the rights and obligations of each company owner.
However business and commercial laws are very complicated so it is recommended for business entities to have at least one attorney to consult for advice pertaining to corporate misunderstandings.

Major conflicts and disputes are traditionally resolved in court litigation. However, because it is a longer process and not to mention the high expense that comes with it, most are compelled to settle their cases through alternative dispute resolutions (ADR).

Alternative Dispute Resolutions

The two most common ADR in resolving shareholder disputes / partnership disputes are:
  • Mediation – In this type of ADR, the opposing parties meet with a third party who will act as a mediator. In this process, both parties discuss and try to come up with a resolution to the conflict. The mediator is not authorized to impose a resolution but can make a suggestion. The resolution must be agreed upon by both parties.
  • Arbitration – This ADR is much more similar to a formal litigation where an arbitrator will act as judge and hear out both sides. Unlike mediation, the arbitrator is tasked to provide a resolution to the dispute. Like in a court room, there is usually a winner and a loser to the process.

If the dispute is not resolved through ADR, then the last recourse would be through litigation.

This Article is provided as a free informative service to Fakih Law’s clients and friends.  The Article is for general information only and should not be used as a basis for specific action without obtaining further legal advice.

You are here: Home