Shareholder Deadlock Disputes: An Overview
A closely held corporation is a company with a limited number of shareholders. In some cases, a closely held corporation may have as little as two shareholders. Shareholders deadlocks are among the biggest threats to smaller companies. A deadlock can cause serious problems for a corporation—potentially even grinding operations to a halt. Here, our Miami shareholder dispute attorneys highlight four things to know about understanding and resolving deadlock disputes.
- A Shareholder Deadlock is an Impasse
The best way to understand a shareholder deadlock is that it is an impasse. The fundamental structure of the company has made it so that a disagreement on a material issue cannot be easily resolved. The most simple example is that of a closely held corporation with two 50/50 shareholders. If they sharply disagree on the direction of the business, there could be a deadlock.
- A Shareholders’ Agreement is the First Place to Look for an Answer
With shareholder disputes (including shareholder deadlocks), the shareholders’ agreement is always the first place to look for an answer. As simply defined by Investopedia, a shareholders’ agreement is a document that explains how the company should be operated. Among other things, the agreement should describe the rights and obligations of each shareholder. Ideally, it will also include some type of system from resolving deadlock disputes.
- A Deadlock Can Become a ‘No-Win’ Situation
The shareholders of a closely held company are not fully opposed to each other. Indeed, shareholders have many overlapping interests. It is important to keep this in mind when approaching a deadlock dispute. These disputes have the potential to destroy a small or mid-sized business. They can quickly become a ‘no-win’ situation.
- There are Tools Available to Break a Shareholder Deadlock
Overcoming a shareholder deadlock can be difficult. The good news is that there are some tools available that can help you and your fellow shareholders find a solution and break the underlying impasse. Even if your shareholders’ agreement is deficient, you can still work towards a resolution that protects your personal financial interests and preserves the long-term viability of the business. Depending on the circumstances, you may be able to break a shareholder deadlock through:
- Informal negotiation;
- Shareholder mediation;
- Shareholder arbitration;
- Appointing an independent/outside executive; or
- Bringing a third shareholder into the business.
A proactive approach is always the best way to handle a shareholder deadlock dispute. The longer a deadlock remains in place, the greater the risk of serious—potentially, irreparable—damages to the business. A top-rated shareholder & partnership dispute attorney will help you find the best way forward.
Call Our Miami, FL Shareholder Dispute Lawyers for Legal Advice
At Pike & Lustig, LLP, our Florida shareholder attorneys have the knowledge, experience, and skill that you can count on. If you have currency locked in a deadlock dispute or you have any questions about your rights, we can help. Call our firm or send us a message today for a private case evaluation. We have law offices in Miami and West Palm Beach.