Shareholder Disputes and how to resolve them

Posted on 28th October 2020

There are many challenges that may arise when running a business. It is important to determine these challenges promptly and find a way to resolve them without affecting the business.

Disputes have the potential to damage a business, resulting in a breakdown of an important relationship which may ultimately lead to a costly end. Where companies are concerned, shareholder disputes are not uncommon. The key to preventing damage to a business is to resolve them without affecting the company.

There are a number of reasons why disputes may arise; these largely revolve around disagreements on the direction of the company, lack of performance by certain directors or mistreatment of duties.

Types of Shareholder Disputes

Shareholders dispute may arise as a result of various reasons. These include the following;

  • Disagreements over the development and direction of the company
  • General conflicts of interest
  • Poor personal relationships
  • Lack of performance on the part of shareholders/directors
  • All or some of the shareholders are of the opinion that the directors are breaching their duties
  • Some shareholders do not feel they are being kept informed or fully informed about the company’s finances
  • Shareholders are not being informed about or included in meetings
  • Minority shareholders believe they are being unfairly prejudiced by controlling or majority shareholders

Rights of a Shareholder

Shareholders have certain statutory rights, these consist of the right to inspect company registers and to require the company call a general meeting. The usual practice is to deal with the disputes through the company general meetings however if this is unsuccessful the shareholders may use alternative methods to address their concerns. These include;

  • Personal claims against the company
  • Shareholder buy-outs
  • Derivative claims
  • Just and equitable winding up in accordance with the Insolvency Act 1986
  • Unfair Prejudice Petitions – a powerful weapon for the aggrieved minority shareholder under the Companies Act 2006

How to resolve Shareholder Dispute?

The first step is to check if the company has a Shareholder Agreement, this regulates the relationship between the shareholders and the management of the company, ownership of shares and the protections of shareholders. In absence of a Shareholder Agreement it may be difficult to ascertain the rights of the shareholders; however there are other options to consider. These include:

  1. Checking company articles
  2. Passing a resolution at a general meeting to redress the problem
  3. Appointing advisors to assist
  4. Removal of a director
  5. Negotiations
  6. Mediation

Shareholder disputes can be resolved swiftly as long as the correct approach has been taken. We recommend seeking legal advice at the earliest opportunity. Our dispute resolution team fully understand the level of stress involved in shareholder disputes and are committed to providing you with an effective path to resolve this. Our team will help discuss all the options available to you and guide you through the potential claims that may arise. Call now on 0808 231 6369 or request a call back online.

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