Once you have launched your business one thing you will want to avoid is an internal or external dispute because these invariably
- drain energy and morale
- take up valuable time
- damage the business
- cost money to resolve
Your main aim will be to avoid disputes arising and then by having your internal documentation regularly reviewed as part of our Business Health Check service.
It is essential that documents regulating your business such as
- Articles of Association
- Partnership Agreement
- Shareholder’s Agreement
Accurately reflect the set up of your business at any given time. You should then be able to ensure that if a dispute does arise, each party is aware of their rights and obligations with a clear process in place for resolving the dispute as quickly and efficiently as possible.
The term “shareholder disputes” covers a wide range of issues which can arise between shareholders, often in situations where the shareholders or some of them are also Directors. These disputes often relate to strategic and control issues between majority shareholders and minority shareholders.
Common types of Shareholders Disputes
- the shareholders or some of them consider that the Directors are acting in breach of their duties
- Dividend policies which may favour some shareholders over others
- minority shareholders generally being “unfairly prejudiced” by controlling or majority shareholders
- some shareholders not being kept informed or fully informed as to the company’s finances
- failure to inform shareholders of meetings and/or exclusion from meetings
- breaches of any existing Shareholder’s Agreement or the Articles of Association
- one or more of the main shareholders generally treating the company as exclusively theirs and manipulating matters to draw dividends or salary only for them, or diverting business to other entities controlled by them
- general conflicts of interest
What action can you take?
It is difficult and expensive under the Companies Act 2006 for a minority shareholder to take formal Court action, but simply threatening an Application, and skilful negotiation can achieve the desired outcome. The Courts will look at a wide range of issues including those listed above. If any of them were established as being the case this would clearly be unfairly prejudicial to minority shareholders.
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, will be an Order that the company or majority shareholder(s) purchase the minority shares at a “fair value” to be independently valued.