Shareholder dispute solicitors advice

There are many different types of shareholder disagreements. Directors can be involved in them too, often because of strategic and control issues between majority and minority shareholders.

Disputes are best avoided as they can end up being expensive and complex, and will most likely negatively impact the company’s day-to-day operations.

What causes minority shareholder disputes?

Many disagreements involve minority shareholders. They can sometimes feel that they’re being disregarded or overruled as their share in the company is small. However, it should be noted that minority shareholders actually have many of the same rights as those who own a larger share.

How can I enforce my rights as a shareholder?

To enforce your rights as a shareholder, you can take a number of actions. For instance, you could:

• Propose a resolution to a shareholder dispute
• Request that the board of directors take legal action in the company’s name against an individual director (shareholders aren’t usually able to sue in the business’ name)
• Make an application to the courts for the company to be closed down – for instance in the situation where there is a justifiable loss of faith in management due to serious company mismanagement on behalf of the directors (like fraud)

Is the company liable for the fraudulent acts of a director?

This is dependent on the unique case in question. All the facts will need to be presented to determine whether it is the company or the fraudulent director who is seen as legally liable – the law is very complicated when it comes to this matter.

Can the shareholders dismiss a director?

Shareholders can potentially bring about a director’s dismissal, though this is a very complex area of law. Those that represent at least 5% of the company’s voting rights can force the board to call a general meeting. This is a lengthy process, and requires a clear agenda and proposed text of resolutions to be passed to dismiss a director. Ordinary resolution passes need greater than 50% of voting shares present at the general meeting.

What are the common shareholder disputes?

Shareholder disagreements usually involve:

• Conflicts of interest

• Director and shareholder disputes where directors have breached their duties

• Certain dividend policies seeming to favour specific shareholders over others

• Unfair prejudice by majority shareholders

• Some shareholders feeling that they’re not being updated when it comes to the company’s finances

• Shareholders not being kept in the loop with (or included in) meetings

• A violation of a shareholder agreement or the articles of association

• Concern that a shareholder is diverting business

Avoiding disputes in the first place – getting the right shareholders’ agreement

These disagreements can be prevented if you have the right documentation in place, including incredibly clear employment contracts, articles of association, and a shareholders’ agreement. Depending on your requirements, these can provide minority shareholder protection, make it plain what the company’s aims are, and put in place a process for disputes.

Shareholders’ agreements can be created at any point in the company’s life cycle, although it’s best to draft one sooner to reduce the risk of any future disagreements. They outline the rights and responsibilities of all the shareholders, and should include the following as a minimum:

• When shareholders’ meetings will be held, and how and when members can request one
• The process for shareholders to form a quorum (the minimum level of attendance needed) to vote on issues
• Details around selling or transferring shares, any limitations related to this, and how the shares are valued
• How shareholders provide capital for the business, along with what happens when they’re unable to make their contribution
• When a shareholder can be bought out of the company
• What happens if a shareholder dies
• What happens if there was an involuntary transfer of a shareholder’s assets
• The official disagreement settlement procedure

Potential claims available in a shareholder dispute

The possible claims you can make include:

• Section 994/minority shareholder petition – For unfair prejudice against minority shareholders.
• Derivative action – Where shareholders contest the acts or failures of a director or third party. They may have carried out some form of negligence, default, or breach of duty or trust.
• Winding up of the company – Where it’s believed it’s just best to close the company.

What rights do I have as a minority shareholder?

You have rights under the Companies Act, although these are quite limited. What exactly you’re entitled to depends on your shareholding amount:

• 5% or more – You can request the circulation of a written resolution or that the company calls a general meeting, as well as prevent the deemed re-appointment of an auditor.
• 10% – You can order a poll vote at a general meeting, as well as summon an audit.
• More than 10% – You can block an ‘agreement to short notice’ of a general meeting.
• More than 25% – You can stop a special resolution, as well as a compromise arrangement.
• 50% – You can prevent ordinary resolutions.
• More than 50% – You can allow an ordinary resolution.
• 75% – You can permit a special resolution, and approve compromise or arrangement with members or a class of members (providing a court sanction is in effect).
• More than 90% – You can consent to short notice of a general meeting, and remove minority shareholders when a takeover offer has been made.

As these minority shareholder rights are so restricted, it’s best to put in place a shareholders’ agreement to enhance them. There are a variety of clauses that can be included in this contract. One that we recommend is your entitlement to access financial records and documentation. Evidence like this is often key to resolving shareholder disputes.

Other common clauses that minority shareholders opt to put in agreements include:

• Powers of veto (so they can prevent actions unless the minority agrees)
• Dilution of shares (so the majority cannot drown out minorities)
• A dispute resolution clause (to block abuse of minority shareholder rights)

Solicitors specialising in shareholder disputes

Why choose our shareholder dispute solicitors?

When it comes to dealing with shareholder disputes, or putting together a shareholders’ agreement, we can’t emphasise enough the importance of getting legal advice. These matters can be extremely complex, so it’s best to put your requirements in the hands of a team with plenty of experience and knowledge in this area of law.

As shareholder dispute solicitors, we do what it takes to resolve disagreements as quickly and amicably as possible, and make sure there’s minimal impact on the business. That means you can trust us to manage your disagreement too.

Just some of the reasons our clients choose us include:

• We reduce your costs – We provide our services at the lowest cost possible.
• We make legal advice straightforward – We remove the jargon from the shareholder disputes process, so you can understand exactly what your rights are.
• We adapt to you – We champion flexibility, adjusting our opening hours and how we communicate to make sure our service fits around you.