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Shareholder Disputes

Shareholder disputes can be extremely disruptive to the running of the business. A shareholder is vital for the making of important decisions, in the event a dispute arises, strategic business decisions cannot be implemented until the dispute has resolved.

What is a shareholder’s dispute?

A shareholders dispute is a disagreement between shareholders which can be in relation to essential details about the way the company operates, finances etc. All shareholders have a financial stake in the business and therefore it is most likely that tensions will be higher than in a normal business dispute and the causes of the disputes may be more much more complex and involved. 

Common causes of shareholder disputes

There are many causes for shareholders disputes these can be:

  1. Breaches of a duty
  2. Management of the company
  3. Differences between salaries
  4. Differing business interests between Directors
  5. Communication of finances between shareholders
  6. Shareholders being excluded from board meetings
  7. Breach of shareholder’s agreement

Breaches of a duty

When an individual has been formally appointed as a board of director they will have to take on certain duties which are legally binding.

In the event a director is in breach of their duties then the company can take legal action against the individual, this can be a very common cause for a dispute between shareholders.

Management of the company

It is not unusual for board of directors and shareholders to have differing ideas or opinions in the managing and running of the company and therefore shareholders may not agree with the board on various issues. In the event the differing ideas or opinions cannot not be resolved it may become the cause of a dispute.

Differences between salaries

A difference in the amount of salary received by each board member/shareholder can lead to disputes. In particular if all board members/shareholders have not been given a reason for the difference or if the roles are not properly defined.

Differing business interests between Directors

It is the duty of the company’s directors to ensure that any possibility of conflicts is avoided. This would mean that a director must not make use of a business opportunity that could have been used by their company without the approval of the company.

Communication of finances between shareholders

An important duty of a board member in relation to the company’s shareholder’s is to ensure that they are fully informed about the financial position of the company. A dispute can quite easily arise if shareholders are kept in the dark for example in a situation where the company is losing money, this is a very serious matter and a shareholder has a right to be informed about the position.

Shareholders being excluded from board meetings

Another cause for a dispute to arise is shareholder’s being excluded from board meetings. Being excluded from a board meeting can lead to distrust between shareholders and directors which can obviously and quickly become a dispute.

Breach of shareholder’s agreement

A shareholder’s agreement is a contract between the shareholder’s which includes the rights and obligations of all shareholders. If the agreement is breached in any way this can lead to a dispute between shareholders and/or directors.

How to resolve shareholder disputes?

Disputes between shareholder’s are costly and time consuming if taken to court. Understandably disputes cannot be avoided at all times however it is recommended that a shareholder’s agreement is entered into when establishing a new business in order to avoid such disputes.

Attempts can be made to resolve shareholder’s disputes in different ways such as:

  1. Check your shareholders agreement and articles
  2. Proposing a resolution at a general meeting to redress the situation
  3. Appointing directors and other advisors
  4. Removal of a director
  5. Negotiation
  6. Employment cause of action
  7. Mediation

If you need help and advice regarding a shareholder’s dispute, please do not hesitate to contact us on 0113 350 4030 or at hello@scesolicitors.co.uk.

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SCE Solicitors is a boutique employment law and litigation practice based in Leeds which advises clients nationwide. Please note that the information in this blog is to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with SCE Solicitors or other professional counsel before acting on the information contained here.

Sam Mukhtar
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Sam Mukhtar

Sam Mukhtar is a paralegal at SCE Solicitors, she has over 5 years of legal experience. Prior to starting her role at SCE Solicitors, she worked in a regional firm in Greater Manchester dealing with civil matters before moving to Leeds and joining the SCE team.

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