Shareholder disputes can – and do – arise for a variety of reasons. Perhaps one shareholder has had a change of heart about the business, another feels that his interests are being unfairly prejudiced by the conduct of others, or maybe shareholders simply no longer wish to work with one another anymore.
Shareholder disputes can be particularly troublesome in companies where the shareholders and directors are one and the same. In these circumstances, a shareholder deadlock coupled with director deadlock can paralyse a business.
These sorts of disagreements can be stressful and fraught with legal complications. This is why it is important to seek specialist advice at the earliest possible opportunity, in particular to ensure you do not do anything to prejudice your own position.
What should I do if I find myself at loggerheads with my shareholders?
Luke Morgan, Partner and Commercial Litigation expert at Palmers, says the first thing shareholders (and shareholder directors in particular) should do is “stay calm and not make rash decisions that might later prejudice their position, whether in their capacity as director or their capacity as shareholder.”
Often disputes of these kind are best resolved and negotiated by careful review and consideration of the company’s Articles of Association or a written Shareholders’ Agreement, provided that (i) the Articles have properly been considered and drafted at the start of the relationship and (ii) a Shareholder’s Agreement exists.
“If the dispute is not handled sensitively, the consequences could be drastic – having negative repercussions for all directors and shareholders involved with the company, regardless of whether or not they had any involvement in the initial dispute,” Luke said.
“Therefore, speaking to a solicitor is ultimately the best way to gauge your best options and at an early stage.”
How can I prevent a shareholder dispute from arising in the first place?
Shareholders who wish to reduce the likelihood of a dispute – or ensure that their interests are protected should a dispute occur – can draw up what is known as a Shareholders’ Agreement, says Matthew Johnson, Associate Solicitor and Commercial expert with Palmers.
He explains: “A Shareholders’ Agreement sets out the relationship between shareholders, and carefully documents what will happen if difficulties arise.
“This means that, should shareholders fall out at a later date, rash decisions which may prove damaging to the business cannot be made, as shareholders will need to act in accordance with what has been previously agreed.”
Matthew said it was wise for all shareholders to group together and draw up such an agreement at the earliest possible opportunity – as shareholders’ agreements can always be amended as and when business circumstances change.
“These agreements are governed by contract law as opposed to company law, meaning that they can be amended by simple agreement as and when shareholders see fit,” he said.
For tailored advice in relation to shareholder disputes or Shareholders’ Agreements, get in touch with Palmers today.