When sharing becomes warring – shareholder disputes.
Often smaller owner managed business are conceived and operated by family and friends. Both are optimistic at the outset that their solid relationship will stand the test of time. Unfortunately that’s not always the case.
In this blog we look at shareholder dispute causes and remedies. How to mitigate the damage and ways we can help you to resolve/manage the issues as painlessly as possible.
Our forensic team are regularly involved in shareholder disputes and it’s common for the warring parties to be family members. In fact, family disputes seem to be the most acrimonious of the lot. Unsurprisingly, running a business can be stressful and when this stress can’t be left at the office the result can be unpleasant. We have witnessed all sorts of relationships fall apart, be it spouses, siblings, parents, children or friends. What started out as a dream venture can turn into a nightmare.
In our experience, the triggering event for a dispute between shareholders frequently relates to how the business is being managed with one (or more) parties feeling that they are being robbed.
A company is ultimately the property of the shareholders although its day-to-day management is the responsibility of the directors. Shareholder disputes often arise where one or more shareholders are also directors and can influence the decisions of the company in favour of their own personal interests. For example through entering into contracts with related parties or invoking a remuneration strategy for their own benefit. Sometimes a shareholder director will transfer the trade of the company to a separate entity with different ownership thereby excluding the other shareholders from benefiting from profits generated in the new entity.
We have also assisted in a number of disputes arising from a change in shareholders as a result of shares being inherited by new parties who are unhappy with how the company is being run.
How to mitigate?
Shareholder disputes are notoriously costly to fight through the courts and can be time consuming and difficult to prove allegations. Whilst we cannot prevent a shareholder dispute we would always recommend entering into a shareholders’ agreement whenever a new business is established. Consequently, if you don’t have a shareholders’ agreement now, we recommend getting one drawn up by a good commercial solicitor. Whilst an agreement can say whatever the shareholders want it to say, helpful clauses from a financial perspective include the method of valuing shares in the event of a dispute or departing shareholder (in particular whether the shares should be valued with or without a discount to reflect their minority status).
How we help
Often the only practical solution in a shareholder dispute is for one or more parties to exit the business. In such situations we can assist with many aspects of the settlement negotiations. Including advising on the value of the company and the respective shareholdings; undertaking due diligence and advising on the tax implications of a sale or transfer of shares; corporate restructure or settlement agreement.
For more information
To find out more about how we can help you contact Kate Hart, or call us on: