A Corporation is formed at the federal or provincial level and has a separate legal entity from its shareholders. Disagreements between shareholders of a company may give rise to legal disputes. It is essential to resolve these disputes before they start disrupting the business operations of the Corporation.
Every shareholder has an equal right to know about the financial position and business affairs of the company. When a shareholder has a suspicion about mismanagement by another shareholder, it can give rise to complicated disputes. These disputes are usually referred to as shareholder oppression applications and they can lead to the breakdown of the relationship between the principal shareholders of the Corporation.
A shareholder agreement lays down the dispute resolution process to be followed in case of a dispute or disagreement between the shareholders, or what will happen if one of the shareholders in a private company wants to dispose of their shares or interest in the Corporation. In its absence, the disputes will have to be resolved by arbitration, mediation or litigation in provincial or federal courts. Ontario Courts recommend that companies prefer arbitration over other alternative dispute resolution methods (ADRs), however there is no legal obligation to submit to any form of mediation or arbitration in the absence of a shareholder’s agreement which provides for such. If the dispute remains unresolved, litigation may be the next logical step.
Disputes can also arise in a partnership. Partnership refers to an agreement between individuals who agree to share finances and profits in a business operation. A partnership agreement will set out the terms of the business operations and dispute resolution methods between partners.