AVOIDING CORPORATE DEADLOCK

Corporations, limited liability companies and other entities have become a standard resource or mechanism to help individuals shield themselves from personal liability when going into business, holding investments, or otherwise entering into a variety of undertakings.  The ever increasing use of such structures, however, can sometimes lead to other, unanticipated problems, particularly when the shareholders or directors of an entity cannot agree on matters impacting the entity.  In a worst case scenario, disagreements can escalate and eventually lead to complete gridlock, negating many of the advantages and corporate opportunities that once existed.

In order to avoid such gridlock and protect their corporate investment and opportunities, prudent individuals and entities should have a plan to deal with disagreements in their bylaws, operating agreement or other organizational documents.  In particular, it is advisable to clearly identify and document who gets to control or make various decisions on behalf of the entity.  In addition, consideration “out of the box” or alternative dispute resolution procedures is recommended.  For example, in a closely held corporation, is there a trusted third-party that might be empowered to cast a tie-breaking vote if deadlock arises?  Likewise, rather than litigating disputes, which puts the entity’s private affairs and the dispute into a public arena, might the parties prefer to mediate or arbitrate the dispute?

While, in an ideal world, these types of decisions would have been or should be considered, adopted and documented at the time the entity was or is created, it is almost never too late to plan for and address how disputes will be handled.  Our corporate attorneys at Black, Slaughter & Black, stand ready to assist individuals and entities in considering, implementing or updating their organizational agreements, policies and practices to plan for a bright, successful and conflict-minimized future.