Shareholder Dispute Arbitration Clauses

Shareholder Dispute Arbitration Clauses

A shareholder dispute arbitration clause is a provision commonly included in corporate bylaws or shareholder agreements that specifies that any disputes arising between shareholders, or between shareholders and the corporation, will be resolved through arbitration rather than litigation in court. This clause aims to provide a more efficient, cost-effective, and private means of resolving conflicts.

Arbitration is an alternative dispute resolution (ADR) method, where an impartial third party, known as an arbitrator, hears both sides of the dispute and makes a binding decision. The inclusion of a shareholder dispute arbitration clause can help prevent lengthy and expensive court proceedings, and it often allows for a quicker resolution.

For example, if two shareholders have a disagreement over the management decisions of a corporation, instead of taking the matter to court, the parties would initiate arbitration as outlined in the clause. The arbitrator would review the evidence, hear testimonies, and issue a decision that both parties are obligated to accept.

It’s important to note that while arbitration can streamline the dispute resolution process, it also limits the parties’ ability to appeal the arbitrator’s decision, as arbitration rulings are generally final and binding. Thus, shareholders should consider the implications of including such a clause in their agreements, weighing the benefits of efficiency against the potential lack of recourse.