Shareholder disputes – how to spot the early warning signs and also avoid disputes in the first place

August 29, 2019

Disputes between shareholders are a serious matter. Not only can they be highly disruptive to the business, they can result in the company collapsing, as a result of complicated and acrimonious litigation.

If is often possible to spot the early warning signs of a shareholders’ dispute. If, then, effective steps are taken, it may be possible to prevent the disagreement escalating into a full-blown dispute.

The following types of shareholder behaviour may indicate that a dispute is on the horizon:

1.       Complaining of being excluded from meetings unlawfully

2.       Being regularly disruptive at meetings and antagonistic in correspondence

3.       Speaking “on behalf” of a group of shareholders

4.       Regularly alleging that other directors and shareholders are not performing

5.       Forcefully disagreeing with the business direction of the company

6.       Starting to use legal language when talking about the alleged failure of others

7.       A deteriorating relationship with other shareholders and directors

8.       Calling for frequent board and members’ meetings to suit their own availability

9.       Threatening to involve lawyers in the running of the company

Despite identifying these behaviours, certain factors may prevent you from successfully mediating between the various parties involved. Highly unreasonable behaviour and negotiating positions or serious misdeeds and fraud may make it very difficult to resolve a dispute without legal intervention.

There are of course preventative measures that can be taken which will, in the long run, hopefully go some way to minimising the risk of a shareholders’ dispute developing in the first place. Examples of the kind of steps that can be taken are:

1.       Ensuring that the company’s constitution documents (e.g. Articles of Association) are clear, comprehensive and properly drafted

2.       Putting a shareholders’ agreement into place

3.       Ensuring that the directors are aware of their statutory duties and arranging training if necessary

4.       Putting directors’ service contracts into place

5.       Making sure that all board and members’ meetings are properly called, agendas are circulated in good time and accurate minutes are taken and circulated

6.       Considering establishing sub-committees where appropriate

7.       Taking appropriate legal advice at an early stage

8.       Considering offering to buy-out troublesome shareholders

A dispute between shareholders may be unavoidable. If that happens you should seek legal representation from an experienced lawyer as soon as possible.

Never underestimate the seriousness of a shareholders’ dispute.