Shareholder disagreements and how to resolve them
In starting our own business, at the forefront of our thinking was to offer more than traditional accountancy services and become the "go to trusted advisors" for clients seeking practical, experienced, cost effective solutions to business problems.
Talking of starting businesses, we have yet to come across a business where than are several shareholders, who at the outset are contemplating or deliberately seeking to create problems or disputes.
Unfortunately, in reality, things change and shareholder disputes are common.
We also advise and assist where disputes arise - common causes of shareholder disputes include :-
- that there is no shareholder's agreement in place - the most common reason for a dispute
- where the business is managed only for the benefit of the majority shareholder(s).
- dividends - often the majority shareholder may find a way to extract money or benefits out of the company leaving no profit to pay dividends so that a minority shareholder loses out.
- Where a shareholder diverts business, money or clients to another business entity where he/she/they are involved, directly or indirectly. This falls into the category of a conflict of interest scenario.
- Control of information - by disclosing little or no information or by excluding certain shareholders some shareholders manipulate to the disadvantage of others. It can also involve exclusion from meetings.
- deadlock where there are equal 50:50 shareholders – without a clear shareholder agreement establishing a mechanism for resolving deadlock situations, inertia may be the result which can stop the company functioning at worst and ultimately cause liquidation.
Resolving shareholder disputes
There are many ways in which shareholder disputes are ultimately resolved. The worst outcome tends to be court action and it can be difficult in any event legally to bring a claim as a shareholder except under the grounds of unfair prejudice. In reality, court action is often too late, money may have gone and the business irretrivably damaged.
Another possible outcome is liquidation. With an otherwise successful business, this is an outcome that really ought not to happen.
A better solution tends to be some form of mediation or where one or more shareholder buys out other shareholders. In the absence of a clear mechanism for this in a shareholder agreement, difficulties inevitably arise. Valuing the outgoing shareholders shares and the business generally is also a highly contentious area.
In any of the above scenarios, the fact that we can offer accountancy, legal and strategic advice and input from one source offers many advantages, not least including costs.
Limited company directors often find themselves in challenging. complex or awkward situations and getting some good external advice can provide clarity, peace of mind and potentially also protection from later challenge or criticism.
Our financial and general business experience and background means we can offer a rounded view on difficult issues but we also offer legal advice and services. Common ways we assist companies and directors include :-
- advice and preparation of director service contracts;
- guidance on potential conflict of interest situations;
- where directors have concerns about some financial aspect of the company's activities, whether suspected fraud, poor financial performance or other;
- where directors do not agree with each other on an issue;
- where directors disagree with shareholders;
- information and reports for directors to provide greater clarity and forward looking information on the business financial position, such as Management Accounts or Reports.
- Advice on fiduciary duties and legal issues generally, including commercial disputes.
- Advice on potential acquisitions by the business or corporate finance related services.
Contact us to discuss how we can help.
If you are a small business in need of independent legal advice and need help and advice on resolving a shareholder dispute, please get in touch with us.