Shareholder disputes

24/02/2020

Shareholder disputes are not uncommon and can be sparked by any number of issues from disagreements over the strategic direction of a company to fractious personal relationships and poor corporate performance. These can often lead to the shareholder wanting to sell his shareholding and cutting all ties with the business.

Such disputes can be incredibly time-consuming, expensive and damaging to you and your business, so it is advisable to act early to sort matters out before the situation snowballs.

It is possible to plan in advance for shareholder disputes by setting out in your Articles of Association or in a Shareholders’ Agreement how disputes will be resolved should they occur. If your shareholder is also an employee, then a written Director Services Agreement or Contract of Employment would also assist.

Should a shareholder dispute arise, the above documents would usually provide for a negotiation phase initially. While not all contracts contain provisions for mediation, this process might be highlighted as the next step to dealing with a shareholder dispute, calling on intervention from an independent mediator.

By ascertaining what each party really wants it might be possible to negotiate a solution. This is always a quicker and cheaper option than ending up in court. Otherwise, the parties in dispute can agree to mediate where there is no express contractual provision.

If mediation is not successful, the Articles of Association and/or Shareholders’ Agreement can set out a process to help resolve the dispute which usually involves specifying the way that shares should be valued and sold.

It is not, however, unusual for there to be no such agreement in place, as when a business is launched, shareholders often feel optimistic with no expectation that their relationship will sour or the business will struggle.

In these circumstances, it may be necessary to resolve the dispute through the courts, although sometimes the mere threat of litigation can actually push shareholders to consider further forms of alternative dispute resolution.

It is advisable to speak to a dispute resolution solicitor at the earliest opportunity before situations escalate.

For further advice on dealing with shareholder disputes, email karen.elder@beswicks.com or phone 01782 205000.