Shareholder Disputes

A shareholder dispute can arise when there are differences between majority and minority shareholders’ interests in a business.

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Even with the most well drafted and agreed Articles of Association and Shareholders Agreement, disputes occasionally can still occur.

    Some of the issues that can arise include:-

    • Breaches of the Shareholder’s Agreement or the Articles of Association
    • Conflicts of interest
    • The unfair prejudice of minority shareholders by a controlling majority
    • Policies for the distribution of dividends
    • Lack of notification of shareholders meetings or exclusion from meetings
    • Diversion of business by directors to other entities within their control
    • Directors breaching of their duties

    Such a dispute has the potential to be protracted and costly. In addition, there can be an impact upon the day to day business of the company and it is clearly in everyone’s interests for the matter to be resolved as quickly as possible. Where a dispute arises, we shall advise on the most cost effective route and seek to ensure matters can be settled without court intervention where possible.

    It is also important to obtain advice as to how the legal costs for a dispute involving a shareholder are to be funded. These costs will often had to be paid for by the individuals involved not through the company.

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    Frequently Asked Questions about Shareholder Disputes

    How do you resolve a shareholder dispute?

    When a shareholder dispute arises, typically the majority shareholders will have the voting power in order to help resolve disagreements. Other options to help resolve disagreements include splitting the business, share buyback, disqualifying a company director, an unfair prejudice petition or taking court action.

    What happens if two directors disagree?

    If company directors disagree, the company can enter deadlock if there isn’t sufficient shareholder ownership to help pass a resolution. Where a stalemate occurs the most common course of action from the courts is to order that the business is sold.

    How do you remove a director who is also a shareholder?

    A director can be removed from a company if they are voted out by shareholder majority. It is often stipulated within the terms of the director’s contract that upon leaving the organisation or business that they will be forced to return their shares.

    Who has more power, a shareholder or a director?

    Directors of a business will have control over day to day decisions made within that business. It is rare that shareholders will have much power over day to day decisions, unless they are granted further powers. Shareholders will have voting rights that can change the course of the company and its directors.

    Can shareholders take directors to court?

    It is possible that shareholders can take the company’s directors to court for wrongs committed against the company. This is known as derivative action.

    What is a shareholder dispute?

    Shareholder disputes arise when there is disagreement over the course of action. Such disputes can include a majority shareholder being blocked from taking a particular course of action by the minority shareholders or there being pressure placed on shareholders to agree to a course of action.

    Contact the Franklins Dispute Resolution team

    If you have any questions about shareholder disputes, please don’t hesitate to contact our team of experts who are on hand and ready to help you.