Resolving Shareholder Disputes: Our Approach
Resolving shareholder disputes is never a simple process as disagreements between business partners, directors and shareholders are often legally complex. Disputes between shareholders are common, and often arise for a variety of reasons. Shareholder disputes can become a particularly serious issue as they can have a severe impact on the smooth day to day operation of a company, which is why it is of utmost importance to have an experienced commercial litigationlitigation: the bringing of a lawsuit or legal claim in cour... team on your side.
Our team of solicitors know that the first step in resolving shareholder disputes will be to identify the terms of the shareholders’ agreement. It is common for parties to have taken legal advice at the outset of their business relationship and had a shareholders’ agreement or joint venture agreement drawn up.
Shareholders agreements will identify the terms and conditions that were originally agreed between the parties; however, this does not always prevent disputes from occurring. When a dispute arises between partners or shareholders, they may need a solicitor to assist them in coming to an agreement to settle the dispute.
Types of shareholder disputes
Some of the most common shareholder disputes that we assist with include:
- 50/50 shareholder deadlocks – These types of disputes often arise where no written shareholders’ agreement exists. Typically the shareholders cannot agree on how to take the company forward, and no shareholder has the majority vote required in order to make key decisions. Communications between the parties have often broken down in these situations. Our specialist solicitors have negotiated amicable resolutions to the most difficult of 50/50 shareholder deadlockshareholder deadlock: in corporate law; a stalemate that ari... disputes.
- Unfair prejudice claims– notwithstanding the existence of a shareholders’ agreement, majority shareholders can obtain statutory remedies under Part 30 of the Companies Act 2006. This is where the company’s affairs have been conducted in a manner that is unfairly prejudicial to the interests of fellow shareholders. Unfair prejudice petitions can be common, and courts have the power to order that an affected shareholder be bought out by the limited company or the other shareholders.
- Disagreements as to funding– in some cases, a venture will require further capital contributions from the shareholders or individual partners. Disputes can arise where there is no clear agreement as to how the venture will be funded beyond initial capital contributions. Funding stalemates can destroy the value of a venture if they are not resolved efficiently.
- Partnership disputes – partners are liable financially for the business partnership; therefore, a third party can make a claim against the individual partners and the partnership itself. Disputes within the partnership can arise when there are disagreements regarding how the partnership is proportioned when a partner wishes to leave the partnership or during equitable winding down processes. These disputes could cause complications and issues for the remaining partners and the business.
- Breaches of fiduciary duties – according to UK law, directors of UK private companies must act in accordance with their statutory responsibilities, fiduciary duties and loyalty to the company. If these directors’ duties are not followed, a breach may lead to conflicts of interest and could lead to commercial fraud claims or misfeasance claims if not resolved.
Our approach to resolving shareholder disputes
We believe that expertly drafted shareholders’ agreements can help to prevent shareholder disputes from happening in the first place. Well drafted agreements will ensure relationships between shareholders and the company are regulated.
A typical agreement between shareholders will outline the following:
- Who will manage the company?
- How the board of directors will be comprised.
- How the venture is to be funded, both initially and on an ongoing basis.
- What will the company do with its profits? Will it re-invest profits, distribute profits as dividends to shareholders, or a combination of both?
- Will the shareholders be able to transfer their shares to a third party and if so on what terms?
- Will there be any key management or operational decisions that can only be made by the shareholders unanimously?
- What happens in the case of a shareholders’ deadlock?
Having a well drafted shareholders’ agreementshareholders’ agreement: an agreement between two or more ... will also assist when resolving disputes if they do arise as they can provide more clarity on the original agreement between the parties involved in the dispute.
We would also recommend that LLP members agreements are drawn up and put in place between the members of limited liability partnerships. Limited liability partnership agreements are legally binding contracts that outline the duties, rights, responsibilities, and liability of each member. They also help to regulate how the partnership will be run and managed. Limited liability member agreements are governed by the default provisions laid out in the Limited Liability Partnerships Act 2000.
ADR for resolving shareholder disputes
Another way in which shareholder disputes can be resolved is through arbitration, mediation or an early neutral evaluation of the dispute. These methods are all forms of Alternative Dispute Resolution (ADR) that can be used to resolve legal disputes instead of using Court litigation proceedings.
- Mediationmediation: in the context of litigation and dispute resoluti... involves a mediator who encourages both parties to come to a settlement.
- Arbitration is a formal resolution method in which an arbitrator will make a decision based on the evidence that both parties provide.
- Early neutral evaluation involves an impartial evaluator who conducts an evaluation of the case and indicates what each party may be able to rely upon if the matter proceeded to determination at trial. They will also provide advice on strengths and weaknesses of the case for each party.
- Informal negotiations can be entered into at any time when both parties want to negotiate an agreement to settle.
These methods are often more time and cost-efficient and can be better at taking each party’s interests in the company into account.
Litigationlitigation: the bringing of a lawsuit or legal claim in cour... for resolving shareholder disputes
If ADR methods prove to be unsuccessful, court proceedings may be issued. It is essential to have an experienced shareholder dispute solicitor on your side to help with your case and represent you in the courtroom.
South Bank Legal provides an expert corporate team with many years of experience providing advice and assistance in resolving shareholder disputes.
How can South Bank Legal assist?
Our shareholder and partnership dispute solicitors handle a range of disputes. In each case, we consider that it is crucial to control the costs of litigation to ensure that legal costs do not grow out of proportion to what is at stake.
Our UK commercial law firm is authorised and regulated by the solicitors regulation authority. Our highly experienced partnership dispute lawyers are registered in England and Wales. We have offices located in Central London.
We provide legal services on a wide range of commercial issues. These include intellectual property disputes, employment law and contract disputes and property disputes.
If you are a shareholder or partner in a venture and wish to understand your rights or potential claims, you can contact South Bank Legal via email at info@southbanklegal.com or telephone 0203 1266 584 for a confidential discussion with a shareholder dispute solicitor to find out how we can resolve shareholder disputes.
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