The Benefits of Mediation in Shareholder Disputes

Disputes between shareholders of a private company are a common occurrence. The interests of shareholders can typically change from the business's inception to the point that they become unaligned, which can lead to irreconcilable differences between the shareholders. The differences may include (but are not limited to) the management of the affairs of the business.

Disputes between shareholders can have a detrimental impact on the business's success, resulting in a loss of management time and negative financial consequences.

Accordingly, finding an appropriate way to resolve disputes is crucial for the business's survival. Mediation is an efficient way to facilitate a resolution.

Mediation has numerous benefits in the context of a shareholder dispute.

Firstly, the effect on the business reputation requires consideration. If court proceedings are issued shareholder disputes, those proceedings are potentially cast into the public eye since the statements of the case, and court hearings are a matter of public record. For the business that is the subject of the dispute, that exposure can hurt its client relationships and its client's perception of the stability of the business and its ability to satisfy any contractual obligations in circumstances where the business owners are engaged in litigation.

Whereas court proceedings are public, mediation is conducted in a private and confidential setting between the shareholders and their respective legal advisors. Therefore, using mediation to settle shareholder disputes can help to avoid negative publicity and helps to maintain client relationships.

Secondly, mediation encourages open and honest dialogue between opposing shareholders and can facilitate more productive communications between shareholders. That can sometimes mean that once a settlement is achieved, the parties can preserve their relationship. This is contrary to the result often achieved in court proceedings, where there is a 'winner' and a 'loser', which can lead to irreparable damage to the shareholders' relationship.

Finally, mediation is more flexible and cost-effective than litigating through the courts, and it can be organised much sooner than a hearing before a judge (which often takes several months). Mediation speed and flexibility can help alleviate the impact on the business by avoiding drawn-out and costly litigation.