Knowing how to avoid shareholder conflicts is essential for the survival of any company—and that requires the expertise of a specialist.
Numerous studies and reports have shown that partnership disputes are one of the leading causes of business closures. In other words, they are very common.
When it comes to technology companies, startups, and businesses in the new economy, the risk is even higher.
This is largely due to changing market demands, the need for rapid business pivots, the tension between adaptation vs. resistance, trust issues, and evolving perspectives among partners—among many other factors.
The Role of Corporate Governance in Preventing Conflicts
Corporate governance, as traditionally known, plays a fundamental role in maintaining proper alignment between business partners.
However, when discussing the business environment, it becomes clear that the most effective way to prevent disputes is through contracts.
Which Contracts Help Prevent Shareholder Conflicts?
The first and most important document is the Articles of Association (or Operating Agreement for LLCs).
Yes, this fundamental legal instrument, often overlooked by business owners, is the starting point for a strong contractual structure designed to prevent conflicts among partners.
Many entrepreneurs delegate this task to professionals who are not specialists in corporate law.
As a result, they end up with generic legal documents, often copied from online templates, lacking the necessary customisation for their specific business structure.
Only a corporate law specialist will be able to address key details such as:
✔ The actual capital contributions made by each partner.
✔ The best governance structure for company management.
✔ The creation of control mechanisms and protection clauses.
✔ Clearly defined roles, responsibilities, and decision-making powers.
Beyond the Articles of Association: The Importance of a Shareholders’ Agreement
After having a well-structured Articles of Association, drafting a Shareholders’ Agreement (or Partnership Agreement for non-corporate entities) is another crucial step.
Can a Shareholders’ Agreement Prevent Conflicts?
Absolutely! In fact, this is “the contract” when it comes to avoiding disputes.
That’s because the Shareholders’ Agreement explicitly sets out all the rules and procedures that will govern the business on a daily basis.
For example:
✅ Who works in the company? And how much time and effort is expected from each partner?
✅ Who has the authority to make decisions alone? When is joint approval required?
✅ How and when will profits be distributed? What are the expectations regarding reinvestment?
✅ What happens if a disagreement arises between the partners? What mechanisms are in place for dispute resolution?
If none of these aspects are predefined, conflicts will inevitably arise when decisions need to be made without clear guidelines.
A well-drafted Shareholders’ Agreement ensures that the interests of both the partners and the company are properly documented, providing legal security and predictability in daily operations and decision-making.
