Shareholder disputes are often described as corporate divorce; and with good reason. The parallels between a couple divorcing and issues that arise between shareholders of a company are many where there are a small number of shareholders and also the court’s wish to reach a fair outcome for the parties.
Commonly with companies run by a few individuals, with them very often being both directors and shareholders, it is clashes of personality that cause the problems in the first place. In other words, the parties are no longer able to live together (or rather in this circumstance work together) and the working relationship has irretrievably broken down. Complications arise as to the extent of the shareholding a party holds and what powers that gives him/her. Added to this, as a further complication, the individual may not only be a director and shareholder, but also an employee of the company and, as such, having employment rights which need to be resolved. A legally binding termination agreement will need to be put in place.
At the end of the day the vast majority of such disputes come down to one word: money. Can one party buy the other one out? Can the company survive if one director leaves taking away his/her skill sets? Should the company be wound up with a division of assets? Should the company be sold or should one party buy the other one out? How much is the company worth overall? And how much is one individual’s shareholding worth? A valuation prepared by an experienced accountant in this field is an essential part of such disputes. The Companies Acts provide for mechanisms in making applications to the court to resolve these issues and the way forward.
The legal documentation that was put in place originally when the company was formed and which commonly people pay little attention to when everything is going well can become significant such as a suitably tailored set of Articles of Association and a Shareholders Agreement which deals with the procedure if one shareholder wishes to leave so that this can be achieved in a fair and orderly fashion.
The circumstances where orders of this type can be obtained are complex. Also there are potential major pitfalls that need to be taken into account when an order of this type is sought.
See also our FAQ’s on Shareholder Disputes