When shareholders and directors fall out: How do you resolve a shareholder dispute?

Disputes between shareholders and company directors are not uncommon. Parties can fall out because they are worried about the future of the business and how the company is being run particularly if there is a concern that decisions are being made that are not in the company’s best interests.

The most common issues that cause dispute include: where it is felt that company directors are not acting in the best interests of the company, are exceeding their powers, have a conflict of interest or where shareholders do not agree with decisions being taken by the company’s directors or feel they are being unfairly treated or kept in the dark about decisions and having their rights ignored.

If the concerns cannot be resolved amicably by the parties then they should seek legal advice at an early stage. Your Solicitor will be able to advise you as to whether the dispute can be resolved out of court such as by using Mediation.

Ideally, your company will have a comprehensive shareholders’ agreement which, together with the Company’s Articles of Association, will set out how your company will be run. Typically it will include rules relating to the sale and purchase of shares; policies concerning the running of the company; possibly protection for minority shareholders including details of voting rights and most importantly it will set out procedures for resolving shareholder disputes including what happens if a deadlock situation arises.

Whilst a shareholders agreement will not prevent a dispute arising in the first place it will play a critical role in resolving any dispute in the most cost effective and commercial way. Keeping the dispute out of court is likely to be less damaging to a business and will not expose your business to public scrutiny or indeed a liability to pay the other side’s costs if there is an unsuccessful outcome.

If court proceedings are unavoidable and you need to ask a court to provide a fair remedy then it is important that you use a professional that understands you and your business and the remedies available to you.

For more information please contact our Akeel Hussain, Litigation Solicitor specialising in commercial and company disputes on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or email akeel.hussain@warekay.co.uk to see how we can assist.