A Brief Guide to Shareholder Disputes

 Are you experiencing conflict with other shareholders? Such disputes are common and can seriously impact your business. Early legal advice is key to prevention and resolution. 

Common Causes of Shareholder Disputes

Disagreements between shareholders can arise in many ways, but some of the most frequent causes include:

• disputes over the management or strategic direction of the company;
• breaches of directors’ fiduciary duties;
• minority shareholder oppression, where the majority act unfairly towards minority shareholders; and
• conflicts of interest or misuse of company assets.

In many cases, disputes are made worse by unclear governance structures or the absence of a properly drafted shareholders’ agreement.

Legal Remedies for Shareholder Disputes

We advise on the full range of legal solutions available to resolve shareholder disputes, including:

• Unfair prejudice petitions (s.994 Companies Act 2006) – where shareholders can challenge conduct that unfairly harms their interests. For example, if the majority exclude you from management decisions.
• Derivative claims – allowing shareholders to take action on behalf of the company against directors accused of breaching their duties.
• Winding-up on “just and equitable” grounds (s.122(1)(g) Insolvency Act 1986) – usually a last resort where relationships have irretrievably broken down.

Preventing Disputes: The Role of Shareholders’ Agreements

A well-drafted shareholders’ agreement is one of the most effective ways to prevent disputes before they start. These agreements:

• set out the rights and obligations of shareholders;
• establish decision-making procedures;
• include mechanisms for resolving disputes without resorting to court.

Conclusion

Shareholder disputes can be complex and emotionally charged, but they are manageable with the right support. With expert legal guidance, shareholder disputes can often be resolved efficiently without damaging business relationships.

If you are facing a shareholder dispute or want to protect your business from future issues with a correctly drafted shareholder agreement, contact our highly experienced Corporate and Commercial Team here.  

The contents of this article is a general guide only at the date of publication. It is not comprehensive, and it does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.