Whilst shareholder disputes can arise in several ways, in our experience the most common form arise out of the scenario whereby two individuals, generally long-term friends, have known each other for a number of years and then decide to set up a company. Both individuals will generally be directors and equal shareholders. Whilst things often go well at the beginning, issues generally start to arise out of the following:
- One of the individuals is not putting as much time and effort into the business as the other
- The individuals concerned have different views on the direction of the company and cannot agree on the direction
- Payment issues (ie one party receiving less than the other or one party dissolving the value of their shareholding)
- One of the parties refuses to work with the other
A written shareholders agreement, together with tailored articles for the company, can help to resolve any disputes. That being said, it is often the case that there is no shareholders agreement in place and that standard articles have been adopted. In such circumstances, a deadlock can arise with parties becoming somewhat entrenched. Shareholder disputes can be extremely distracting and have significant impact on the business. Getting to understand the real reasons for the dispute and goals of the parties can be crucial to achieving any resolution of the dispute without lengthy legal action.
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In our experience, disputes are often resolved by way of negotiation, mediation or, as a last resort, Court action. In terms of a negotiated settlement, the most common outcome will be for one of the following to occur:
- one party buys the other’s shares after a valuation has taken place;
- there is a sale to third parties outside of the company;
- the company purchases the shares.
There are many other options open to resolve shareholder disputes and Tollers can provide tailored advice that best suits your objectives and circumstances. Should you require further information or assistance then please contact us on 01604 258558 or complete the contact form below.