Shareholder disputes are common and can present themselves for a number of reasons. When a shareholder agreement is in place it should outline measures for dealing with disputes, however, such clauses often don’t go far enough or provide for the exact set of circumstances which has arisen. Swift, tactical legal advice is necessary to stem the dispute as soon as possible to find the best all-round solution for the parties involved.

Why do shareholder disputes happen?

Shareholder decisions are usually made by taking a vote and the majority wins. For major changes, such as altering the company’s articles of association, a 75% majority is normally needed. Most decisions will simply come down to the power of voting.

Shareholder disputes often centre around matters of control, strategy or manipulation. A well-drafted shareholder agreement can stave off such problems.

Shareholder disputes solicitors from Simply.Law

Simply.Law is a web-based solution to enable legal service consumers to find the right lawyer for their needs quickly and easily. All of the solicitors featured here are experts in shareholder disputes. They will be able to assess your circumstances and advise you accordingly to help you reach the resolution you need as quickly as possible. Contact Simply.Law today to connect with a lawyer who suits you. Or alternatively, submit your details to us and we will find you a solicitor through our Simply.Law Match facility.

How to deal with a dispute?

If the shareholder agreement does not provide adequately for dispute resolution, then there may not be a prescribed process to follow. Individual shareholder rights will depend on a combination of any existing shareholder agreement, the Companies Act 2006, and the company’s articles of association. The rights of a minority shareholder are generally looked after by the Companies Act and this provides for applications to court if the majority shareholders are behaving in an unfair way or in a manner which goes directly against the interests of a minority shareholder.

Compromise is important and ideally needs to sit as a basis for all negotiations and agreements.

Unfairly prejudicial conduct

Examples of this include:

• re-routing business to another enterprise where it will be beneficial to majority shareholders
• breach of the company’s articles or abuse of power
• deliberate exclusion from management when there is clear reason to participate

If unfair prejudice is proven in a dispute between shareholders then the court has a number of sanctions to apply, including winding up the company – as the most extreme – or placing a ‘fair value’ on minority shares for compulsory purchase by the company or by majority shareholders.

Fiduciary duties of directors.

Directors must:

• avoid conflicts of interests
• always act for proper purposes
• act in the best interests of the company
• not make undisclosed profit

If any of the above are breached by directors sanctions include damages being awarded, the recovery of profits dishonestly obtained, and the recovery of any salary earned whilst breaching their duties. It’s possible for a shareholder to claim breach of fiduciary duty against a director as part of a shareholder dispute.

Enforcing rights

Initially, parties should meet to propose a resolution to the issue. Should this not succeed, then further action can be taken by suing the directors and applying to the court for the company to be wound up, applying to the court for an ‘unfair prejudice’ action, or by approaching the board of directors to sue one individual director in the company’s name.

A popular solution in shareholder disputes is a company buyback; i.e. the shareholder with whom there is a dispute has their shares bought out. However, although this may sound an reasonable solution, there are often ongoing issues such as share valuation, terms of payment, customer solicitation and competition between the outgoing shareholder and the company.

Share buyback liabilities may include tax implications, such as Capital Gains Tax.

Your Simply.Law member commercial lawyer will be able to deal with:

• mediation
• negotiation
• unfair prejudice issues
• share valuation
• derivative claims

Contact Simply.Law today for clear, strategic advice on the best way to handle your shareholder dispute