Investor and Shareholder Disputes
Many private businesses seek and obtain investors to get them started or to help them grow. For example, you may have Angel Investors who have given you capital infusions or seed money. Alternately, you may have a “silent partner” investor, or someone who doubles as a financier and business owner, but is not involved in daily operations. As companies grow, venture capitalists may take large stakes in the ownership of the business and dominate the Board of Directors.
While the nature of investments can vary dramatically, all investments share one trait in common: the potential for damaging disputes to arise. When investors and founders of companies disagree on the way a business is being managed, on how the funds are being spent, or on growth or exit strategies, the result can be a contentious, disruptive, and expensive conflict.
If you and your investors are trapped in dispute deadlock which you are unable to resolve internally, it’s time to consider involving an attorney who can help end the conflict effectively and efficiently. The experienced business lawyers of Bellatrix PC are committed to defending entrepreneurs and companies, and are prepared to engage in aggressive negotiations or defend your organization in court should litigation become necessary. To start exploring your options in a private legal consultation, call the law offices of Bellatrix PC at (800) 449-8992 today.
Ways to Prevent and Resolve Investor Disputes
Fortunately, there are many strategies businesses can employ to prevent or resolve investor disputes before they turn into destructive and time-consuming lawsuits. To provide a few examples, possible solutions may include:
- Negotiating buyouts and equity redemptions between the company and its investors.
- Replacing management or an executive who is causing friction, which may also require an executive compensation buyout and release, or a carefully-crafted severance agreement.
- Involving lawyers at Board meetings for the purpose of negotiating operational agreements, taking minutes, and drafting resolutions memorializing agreements between the company and its investors.
- Selling the company, or alternately, participating in mergers and acquisitions.
- Opting for a formal business dissolution, involving an organized “wind down” that includes proper distribution of assets to creditors, investors, and shareholders.
- Foreclosure of the company by a secured investor.
Of course, none of these solutions are simple “quick fixes,” and you should always consult with an experienced employment attorney who can help you evaluate your options, rights, and responsibilities. All of the aforementioned scenarios require formal legal notices, skilled negotiations, and guidance to avoid breach of contract, breach of fiduciary duties, or waste of assets.
Conflict Resolution Strategies: Mediation or Commercial Litigation?
Ideally, all involved parties will want to save the company and figure out a way to work together, or for one party to part amicably. In this scenario, our qualified mediators can help you and your investors work toward a mutually satisfying resolution. While mediation is not a realistic conflict resolution method for each and every case, in many instances companies and shareholders favor mediation over litigation where feasible, due to the following advantages:
- Mediation is generally a much faster (and therefore more cost-effective) process than litigation. The sooner you can resolve the dispute, the sooner your company can resume unhampered daily operations.
- While litigation can lead to bitter and contentious disputes, mediation preserves amicable relationships by attempting to grant concessions to both parties. This can be extremely important if you wish to maintain a long-term professional relationship with an investor.
- Litigation sometimes generates bad publicity. Mediation is less “high profile,” and is less likely to attract unwanted attention.
When mediation or other means of alternative dispute resolution fail, commercial litigation tends to follow. For example, disputes can turn into lawsuits where courts involuntarily dissolve the business. In other cases, the plaintiff may claim breach of fiduciary duties, and involve personal suits against all or many of the Directors of the Board, officers of the company, and even major shareholders.
Disputes can also turn into shareholder derivative suits, which are similar to class actions, even when there aren’t many shareholders. And unfortunately, depending on who is suing and the policy’s exclusions, the suit may not be covered by Directors and Officers’ Liability Insurance, making the lawsuit financially devastating to all involved.
Contact Our Business Attorneys
It is important to remember that drafting SEC-compliant Private Placement Memorandums and robust financing and equity agreements at the start of a relationship is crucial to avoiding claims of fraud or breach of contract later. If your documentation has any problematic or ambiguous areas, you may wish to renegotiate and tighten your agreements while relationships are still convivial.
If you are involved in a pending dispute, or simply want to review your investment policies before litigation arises, Bellatrix PC can help. Call us at (800) 449-8992 or schedule a Business Risk Review to determine your organization’s vulnerabilities and legal options in a private consultation.
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