Shareholder Dispute

Sadly, disputes can arise between shareholders. Such disputes can potentially damage the business in many different ways including loss of shareholder value, business direction and reputation.

There are many reasons why disputes may arise and you may have already come across or had to deal with a dispute.

Types of shareholder disputes

–          Shareholders fall out;
–          Conflicts of interest in general;
–          Disagreement over the direction of the Company or the development of the Company;
–          Not feeling informed about the Company’s financial affairs
–          Feeling like the directors are breaching their directors’ duties; or
–          Lack of performance by either a shareholder or a director

Most sources of dispute can be avoided with frequent communication to ensure all parties have aligned expectations and matched understanding.  Shareholders’ Agreements are a key tool to help define the direction of the business, ensure all shareholders are aligned and understand their rights, obligations and the expectations placed on them by the company and other members of the company.  

Shareholders’ rights

Without a separate agreement, the usual practice of dealing with shareholder disputes is through the Company’s general meetings, legal correspondence and if necessary court proceedings.  Every shareholder has a right to:

–          Inspect the directors service contract without charge;
–          Bring personal claims against the Company;
–          Make an application for a derivative claim against a third party;
–          Make an application to the court against another shareholder under an unfair prejudice claim;or
–          Make an application to the court to wind up the Company if it is just and equitable.

Providing for and anticipating shareholder disputes in your shareholders’ agreement and articles of association is key. It can save a great deal money, a great deal of time and will inevitably resolve disputes without affecting the company.

MLP Law can help and advise you on any shareholder disputes, including how best to avoid them. Please speak to our Commercial team on 0161 926 9969 or email us commercial@mlplaw.co.uk.       

You can also view our previous blog “Shareholders Agreements and Articles of Association: Does my company need them?” Here