Perhaps the most damaging type of dispute that can hit a company is one between its directors or shareholders.
Unless the dispute is resolved quickly the business itself could fail. Leading commercial solicitor, Gary Cousins, highlights the importance of proper shareholder agreements and the steps you can take if the business relationship between shareholders become untenable.
Many SMEs and family-owned businesses are formed informally and have no shareholders’ agreement setting out what should happen if the owners go into battle.
The riskiest set-up is when there is no one in overall control. Perhaps there are two shareholder-directors, each with 50% of the shares. Such a set-up means that the owners will be in deadlock if there is a dispute with no one in a controlling position, or any mechanism to sort out the problems.
If you are arguing over a particular business decision you may be able to solve the dispute by taking external advice - from a lawyer, accountant or other business advisor, depending on the nature of the disagreement
If you are arguing over a particular business decision you may be able to solve the dispute by taking external advice - from a lawyer, accountant or other business advisor, depending on the nature of the disagreement.
If the relationship has broken down completely and you feel you can no longer work with each other, then usually the solution is for one party to buy the other out.
The first step is take legal advice on the dispute and what can be done. If you do nothing, or simply step back from the business, this might actually put you in breach of your own duties as a director, which is actually far more onerous than many small business directors realise.
Your lawyer will consider the overall situation with you. Can it be sorted out quickly or will one of you need to buy the other out? What is the business worth? A forensic accountant might need to be called in to help value it.
Your lawyer will then see whether you can agree with your opponent how to sort things out. Maybe you could agree to go to mediation.
If you are unable to sort things out amicably you’ll find yourselves heading for the courts. They can get involved in the following circumstances:
1. If one of the directors has been breaching any of their directors’ duties, the company can take legal action against them in order for them to pay back to the company any loss it has suffered.
If no one director/shareholder is in control, you might need the court’s permission to start what are known as ‘derivative proceedings’.
2. If you are being unfairly prejudiced as a minority shareholder by the way the other director or directors are running the company, you might be able to take what are known as ‘unfair prejudice’ proceedings.
3. If it is simply a case that there is deadlock and you cannot work together or agree how to resolve the issues between you, then you might be able to start what are known as ‘just and equitable’ winding-up proceedings. These might force the issue of one party having to buy the other out.
The legal situation is complicated and whenever there is a dispute between directors/shareholders, obtaining legal advice should be the very first thing you do.
