Shareholder Conflicts: Strategies for Prevention and Resolution

The Strategic Importance of Preventing Shareholder Disputes

In the current business environment, internal stability determines a company's success. As highlighted in the Mercantile News Congress at ICAB, shareholders' agreements have become a generalized tool to improve corporate governance and prevent disputes that could jeopardize the entity's continuity. A conflict between partners is not merely a personal disagreement; it is a structural risk that can paralyze decision-making and lead to the company's dissolution.

Disputes often arise from a lack of clarity in roles, the entry of new investors, or divergent visions regarding dividend distribution. Proactive management of these relationships from the drafting of the bylaws is the most effective way to protect the corporate interest.

Prevention: The Shareholders' Agreement as a Shield

The shareholders' agreement (or "pacto de socios") is a private contract that complements the company's bylaws and regulates relationships between partners with greater flexibility. Unlike the bylaws, which are public and rigid, these agreements allow for specific rules tailored to the reality of the business.

Key Clauses to Avoid Future Disputes

• Right of First Refusal: Prevents the entry of unwanted third parties by giving existing partners priority to buy shares.
• Drag-Along and Tag-Along Rights: Ensures orderly exits in the event of a sale offer, protecting both the majority and minority shareholders.
• Deadlock Clauses: Establishes mechanisms (such as Russian Roulette or Texas Shoot-out) to resolve situations where voting is tied, preventing the company's paralysis.
• Non-compete and Exclusivity: Essential to prevent partners from using confidential information for their own benefit or to create competing businesses.

Common Scenarios for Conflict and Breach of Loyalty

Experience shows that shareholder conflicts are not limited to startups; they occur in mature companies where "disloyalty" can manifest in several ways. A common case is the oppression of the minority shareholder, where the majority systematically refuses to distribute dividends without a business justification, purely to force the minority to sell their shares at an undervalued price.

Another frequent scenario involves the use of company funds for personal expenses or the redirection of clients to companies owned by a single partner. These actions constitute a breach of the fiduciary duty of loyalty, which can lead to the removal of administrators and the exercise of liability actions.

Practical Case: Resolving a Management Deadlock

Consider a 50/50 joint venture where the two partners disagree on a capital increase necessary for international expansion. Without a shareholders' agreement, the company faces liquidation due to "deadlock of corporate bodies." However, had they implemented a Put/Call Option clause, one partner could have purchased the other's stake based on a pre-agreed valuation formula, ensuring the company's survival and a fair exit for the departing party.

Legal Resolution Mechanisms: Beyond Litigation

When prevention fails, the strategy must shift toward efficient resolution. Litigation should often be the last resort due to its cost and duration, which can harm the company's commercial reputation.

1. Mediation: A neutral third party facilitates communication to reach a voluntary agreement. It is particularly effective in family businesses where emotional ties exist.
2. Arbitration: Offers speed and confidentiality. By submitting disputes to an arbitrator specialized in mercantile law, the parties obtain a binding decision much faster than in traditional courts.
3. Exercise of Statutory Rights: Such as the right of separation in the absence of dividend distribution (Article 348 bis of the Capital Companies Act), which allows the partner to leave the company receiving the fair value of their shares.

Conclusion

Protecting a company's stability requires more than just good management; it demands a robust legal framework. Implementing a shareholders' agreement and establishing clear corporate governance rules are investments in longevity. If you are experiencing a conflict within your shareholding structure or wish to professionalize your partner relationships, contact Navarro's mercantile law department. Our experts in corporate conflict resolution will help you safeguard the continuity of your business.