Shareholder disputes

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Shareholder dispute solicitors

Shareholder disagreements and disputes are surprisingly common. They can range from differences of opinion about strategy to situations where shareholders consider are have grounds to suspect that the company is only being run, or is being manipulated, for the benefit of only a small number or by the controlling shareholder.

In almost every case, swift action and good legal advice are essential. Much will also depend on whether the aggrieved shareholders have influence or control at director level of the company and the extent to which there is a clear shareholders agreement or suitable articles of association which can be relied on to support a clear resolution of the disagreement, or, where there is a full blown dispute, allegations that the other parties are not acting in accordance with previous agreements.

Legal advice on unfair prejudice claims

It is difficult and expensive under the Companies Act 2006 for a minority shareholder to take formal court action, but the threat of such an application, and skillful negotiation can deliver results.

If a court considers that there has been unfair prejudice, it can make a range of Orders including that the company must be wound up, but the most common remedy, over and above possibly awarding legal costs of the action, will be an Order that the company or majority shareholder(s) purchase the minority shares at a “fair value” to be independently valued.

The courts have wide discretion in this area and orders can include :-

  • Damages
  • An order that shares be sold to the minority shareholder(s)
  • Articles of association be amended.

 Contact us either to ensure that shareholders rights are properly clarified and contractually agreed at the outset, for help with amending articles or advice as to ways to avoid a dispute in future or for advice and assistance in the case of a shareholder dispute. 

Shareholder deadlock

With small companies it is very common for there to be 2 founders and shareholders, and for understandable reasons, typically there will be a 50:50 ownership of shares. However, as a company grows, this brings with it key strategic and operational decisions and a 50:50 arrangement will also often mean that if there is a difference of opinion.

If unresolved, the company will not move forward and bitterness can develop very quickly. A good shareholder agreement will generally include a formula for dealing with deadlock, which, as a last resort, may result in a mechanism and a formula for resolution or even for one party to buy the other out.

If your shareholders agreement is silent and there is deadlock, possibilities can include :-

  • Mediation
  • Interim agreement – some form of interim agreement whereby some issues are left unresolved (but perhaps with a timetable or plan to try and resolve those) but agreement is at least reached to enable the company to continue trading so as to avoid a situation where everyone loses.
  • Buyout – 1 party buys the other shareholder out in which case issues are likely to include valuation, restrictive covenants, possible deferred payments.
  • Shareholder agreement – either varying an existing agreement or where there is no agreement, negotiating one to deal with the problems and/or disagreements.
  • Step aside from day to day running of company – the shareholders agree to step aside in terms of running the company and let someone else do it and just act as owners – unlikely with the smallest of companies.
  • Go to Court – the worst case scenario where one party starts court proceedings and ultimately, the court has to decide the issues. This could even mean that the company is wound up.

If you need legal advice on a shareholder dispute, please do get in touch.

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