Bass, Berry & Sims attorneys Britt Latham and Grace Platt co-authored an article published by Boardroom Pulse outlining how companies can proactively manage shareholder departures and reduce the risk of costly, disruptive disputes commonly referred to as “business divorces.” Drawing on litigation and governance experience, they outline practical steps organizations can take before, during, and after a shareholder exit to preserve value and avoid conflict.
In the article, Britt and Grace explain that the most effective way to prevent disputes is to establish clear governance mechanisms before a shareholder departure occurs. They recommend incorporating buy-sell provisions, valuation methodologies, dispute-resolution procedures, and triggering events into governing documents so that companies have a roadmap in place when a shareholder exit arises. According to the authors, “The strongest defense against a contested departure is put in place on a clear day, long before anyone signals an intention to leave.”
The authors also emphasize the value of mandatory arbitration provisions, noting that thoughtfully drafted agreements can provide a faster, more cost-effective, and confidential alternative to litigation. In addition, they discuss the importance of maintaining thorough documentation, including contemporaneous board minutes to defend the redemption process and independent valuation support to show the price was anchored in objective data rather than negotiated under pressure.
For companies navigating an active shareholder departure, Britt and Grace highlight several factors that frequently receive scrutiny in subsequent disputes, including valuation methodology, consistency of treatment among shareholders, access to information, and the overall fairness of the process. They encourage organizations to approach departures transparently and avoid actions that could be perceived as applying pressure or withholding information.
The article concludes that while shareholder departures can be challenging, they do not have to result in litigation. As Britt and Grace note, “Most business divorces are not inevitable; they result from recurring missteps.” Companies that invest in governance infrastructure, conduct shareholder exits thoughtfully, and implement effective dispute-resolution mechanisms are better positioned to achieve efficient and successful transitions.
The full article, “When a Shareholder Leaves: Best Practices for Avoiding the Business Divorce,” published by Boardroom Pulse on September 15 and is available online.