Unfortunately, shareholder buyout disputes can and do happen. It’s important to prevent these disputes from threatening the success of your business’ future, while resolving or minimizing the impact of these disputes. Settling buyout agreement problems, whether over distributions, dividends or compensation, easily and quickly will only benefit your company.
Why do these disputes happen?
Many reasons could be to blame for such disputes. Perhaps physicians within a practice can’t agree on compensation as part of a business partner dispute, or maybe a business owner admits to fraud leading to the dissolution of the company. Sometimes it has to do with dissenting shareholder actions, which involve appraisal rights to minority shareholders, or forcing third-party buyouts of said shareholders. The issue could involve control of the company, or it could have to do with simple friction between partners that can’t easily be dissolved. Many times it comes down to money: who has it, who wants it and who gets it. Whether it involves the dissolution of a company or a negotiated buyout, these conflicts need a guided hand to bring them to a fair close.
The Key Factor
Having a professional who is skilled in arbitrating shareholder disputes is critical in bringing the matter to a conclusion. The key to stopping shareholder disputes in their tracks and ensuring a positive outcome is to have a solid shareholder’s agreement in place and signed before any disagreements can come up. Buyouts are the most common way to bring about a resolution, led by professionals skilled in representing the best interests of minority and majority stakeholders, owners, equal and silent partners, and any other stakeholder that feels unjustly oppressed.
Working with a firm like Appraisal Economics can ensure that the price being agreed upon is fair to all parties. As a third party independent advisor, Appraisal Economics is able to step in and show the selling shareholder(s) that the price they are receiving for their business is fair. And if in the future there are any other disputes regarding the sale price, the document provided by Appraisal Economics will showcase that the price was fair.
Reasons for Buyouts
There are several events that can happen which necessitate a buyout agreement, including:
- Personal bankruptcy
- Death/retirement of the shareholder
- Terminated shareholder
- Debt foreclosure
There have been many famous shareholder buyout disputes over the years. An example of a landmark employment buyout contract was the case of Pedro vs. Pedro in Minnesota back in 1992 whereby a wrongfully terminated stockholder was granted his lost wages until he hit age 72. More recently, in 2013, a lawsuit emerged from 5,000 former Tribune Co. shareholders seeking lost money. Unsecured creditors sought judgments against each former shareholder who sold at least $50,000 worth of the company’s stock during a 2007 leveraged buyout, according to the Chicago Tribune.
In the end, creating a contingency plan for buying out an unhappy shareholder is the most effective way to avoid a lawsuit, points out the Houston Chronicle. Having an independent valuation opinion provided by Appraisal Economics is a major part of that plan. Being prepared is the key to avoiding unfortunate circumstances that result in messy shareholder buyout disputes.