Breach of Shareholders’ Agreement

 

Breach of Shareholders’ Agreements

Here we speak to Commercial Litigation Solicitor, Lisa Rivers, about the purpose of a shareholders’ agreement, and what happens if the provisions of the agreement are breached.

Why use a shareholders’ agreement? 

A shareholders’ agreement governs the relationship between two or more shareholders of a company and includes provisions as to the day-to-day management of the company in matters such as the transfer and issuing of shares, sale of material assets, and the appointment and dismissal of directors. The shareholders’ agreement sits alongside the company’s Articles of Association and details the shareholders’ obligations to each other and the company. Commonly, a shareholders’ agreement will also list certain major issues in respect of which the shareholders must be either unanimous or reach a certain majority vote before a decision can be taken.

What happens if the requirements of the shareholders’ agreement are breached?

If, for example, a decision is made by the company without the required majority, or if a shareholder actions an unauthorised sale of major assets or transfers shares without following the correct set out in the shareholders’ agreement, the underlying act is still likely to be valid in most cases. However, if the action has caused loss to the other shareholders, for example by devaluing their share, then those shareholders may have a claim for breach of contract against the other shareholder. In that case, available remedies include recovering monetary damages, suspending the offending shareholder’s voting rights, or even obtaining an injunction, forcing the breaching shareholder to transfer their shares or take some other action.

What should I do if this happens to me?

Such disagreements are surprisingly common, and swift action is generally advised, together with prompt legal advice. Quick resolution often depends on whether the shareholders’ agreement and Articles of Association are clear and well-drafted. It is essential that these important documents provide reliable mechanisms for potentially controversial transactions as well as for dispute resolution in the event things go wrong.

Free Initial Discussion

Each dispute resulting from the breach of a shareholders’ agreement revolves around different facts. Blackstone Solicitors have extensive experience in reviewing and preparing such agreements, and in all types of claims arising from such agreements. For a no obligation, free initial discussion, speak to our litigation solicitors today on 0161 929 0121 or email info@blackstonesolicitorsltd.co.uk, and a member of our team will be pleased to assist you.

 

 

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