FAQs around Shareholder Disputes
Why are shareholder disputes a problem for companies?
When dealing with day-to-day matters in a company, it is easy for directors to underestimate the harm that shareholders can cause if they have a grievance and are minded to take legal action against the company. Any shareholder can take such action either on their own behalf or on behalf of the company and even relatively small claims can raise serious and costly issues for the company as well as taking away valuable management time to deal with them. It is generally advised to deal with and seek to resolve shareholder disputes before legal action is necessary, although this is often difficult in practice. However, it is almost always beneficial to seek legal advice at the earliest stage possible to minimise negative impact on the business.
What are “unfair prejudice” claims?
Shareholders have power under the Companies Act 2006 (CA 2006) to remove directors, and can therefore be a powerful force in influencing the direction the company takes. If the minority shareholders feel majority shareholders are making decisions that unfairly cause minority shareholders loss, this may entitle them to bring a claim for unfair prejudice. In other words, if a company’s business is conducted in a way that is unfairly prejudicial to the interests of minority shareholders, or where an act or omission of the company is or could be prejudicial to those shareholders, a cause of action against those shareholders and the company may arise.
What amounts to “unfair” is subject to interpretation, and that is where legal advice is essential as each case turns on its own facts. For example, poor management alone is likely to be insufficient. Relevant members’ interests clearly include financial considerations, but might also extend to their expectations or understanding that they would be included in management decisions, or their claim that a majority shareholder has awarded themselves an unfair advantage.
What can I do to help prevent disputes?
- Take early legal advice following allegations of prejudice by shareholders.
- Ensure shareholders’ agreements and articles of association are clear, comprehensive, enforceable and up to date.
- Ensure issues in dispute are correctly voted upon.
- Ensure directors are aware of and comply their duties under CA 2006.
- Consider whether to buy out an aggrieved shareholder rather than risk litigation.
- Deal with negotiations via solicitors wherever possible.
Get In Touch
Blackstone Solicitors can assist not only with ensuring that your documents hold up to scrutiny and properly deal with potential Shareholder Disputes, but also when matters have passed that stage and a dispute is unavoidable. We have extensive experience in all types of shareholder disputes, including negotiating settlements, all types of Alternative Dispute Resolution as well as in fully Litigated cases where unavoidable. Call us today for a free, initial discussion on 0161 929 0121 or email firstname.lastname@example.org, or alternatively we can contact you, just complete our online enquiry form and we will be in touch.