Shareholder disputes can occur for a variety of reasons. These disputes can stem from lack of transparency with finances, unequal distribution of profits, and disagreements over management. Additionally, power struggles between individuals or groups can contribute to shareholder disputes. Furthermore, mergers and acquisitions, changes in the company’s ownership structure, or reorganization can also cause disputes among shareholders. In this blog, we’ll go over different resolutions for shareholder disputes in Nevada, along with the importance of a shareholder agreement.
In Nevada, it is important to note Rule 23.1. Derivative Actions by Shareholders[1] which can be brought by one or more shareholders of a company. This rule provides legal recourse for a shareholder that believes the corporation’s directors or officers are not acting in the best interest of the company. It is an important rule that can hold corporate leaders accountable for their actions and ensure that the company is being run ethically and in accordance with the shareholder agreements.
Depending on the severity of the shareholder dispute, the type of resolution most suitable for the situation can fall under mediation, arbitration, or litigation. Mediation is used when the parties are open to negotiations and there is a path to amicably resolve the dispute with an objective mediator. Arbitration is a process in which a third-party arbitrator, who is selected by both parties, is involved with the dispute resolution. Similar to a judge, an arbitrator can analyze evidence and decide on the outcome of the case, thus avoiding having to go to court. NRS Chapter 38 Mediation and Arbitration[2] allows for the arbitration ruling to be legally binding. Litigation is a last resort for shareholder disputes. This process involves filing a complaint with the court. Lawsuit proceedings can be lengthy and emotionally and financially costly for you or your business. It is recommended to seek counsel with a shareholder dispute lawyer in Nevada before proceeding with any of these dispute resolution options.
A well-written shareholder agreement or bylaws are an important part of figuring out a path to shareholder dispute resolution. These foundational documents should be drafted or reviewed by an experienced Nevada contract attorney. It will not only list the rights and responsibilities for both directors and minority shareholders, but they will also usually have a clause for dispute resolution as well. These are a few reasons why you’ll want to make sure your company has these important documents as a director or shareholder.
For Directors:
• Clarity on roles and responsibilities to help prevent misunderstandings and disputes.
• Prevention of dilution, the accumulating of shares to gain control, protecting the majority’s interests.
• Protection of majority control, ensuring they maintain decision making authority.
For Minority Shareholders:
• Disclosure and transparency when it comes to important information, such as financial statements and business decisions.
• Protection of interests to ensure minority shareholders are treated fairly and equally, providing them with certain rights and protections.
• Remedies for unfair treatment, such as the right to purchase shares or seek legal intervention.
Overall, a shareholder agreement or bylaws provide an outline for governing the relationships between shareholders, directors, and the corporation. It is best to speak with an experienced business attorney in Nevada who can help guide you through shareholder disputes or establish a framework to help avoid costly disputes in the future.
[1] https://www.leg.state.nv.us/courtrules/nrcp.html#NRCPRule23_1
