How To Avoid and Resolve Disputes Between Shareholders

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Follow our series of 2 mn videos highlighting typical problems for shareholders/directors with the solution.

The urgent steps sole directors in companies regulated by the Model Articles must take following a court decision

Can a shareholder walk out of the company yet not be required to sell his shares to the remaining shareholders?

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Agreements For Shareholders  

Running a business with others is much like marriage. In fact many will say they spend more time with their business partners than with their spouses.

Within that time they will share joy and heartache as fortunes rise and fall and, just like in marriage, the relationship can turn sour as problems develop and differences set root.

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Mediation For Shareholders

Mediation is the name given to a broad range of processes for assisting in the resolution of disputes without the delay, cost, anxiety and risks associated with asking a judge sitting in a court to determine the matter.

Importantly the mediator can often help the parties reach a creative solution that no judge has the power to impose.

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Negotiation Strategy Advice

Disputes between shareholders usually persist because one or other, or more often both, of the parties do not fully and totally understand all of the rules of corporate governance, the rights and duties of each person, the options each has and, importantly, the damage each can individually suffer in the absence of reaching a fair and sensible agreement. 

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What Our Clients Say

"Having your support and advice back then, was paramount in order to get the best possible outcome. Thank you again Graham for all the help. My file can now go into your "success cases" folder! "

MK - Luton

"Graham has a lot of knowledge and experience in mediation and helped us massively. Would definitely recommend."

Liam - London

"Graham is extremely knowledgable, & was able to help me with a very difficult business situation I thought had no solution. Highly recommend."

Tina-London

"Was recommended to speak to Graham via a forum and I am so glad I spoke with him. He has got us out of a very difficult decision with regards to the call of an EGM and multiple director dismissals with fantastic advice and a full review of our articles. There isn't much Graham didn't know when it comes to company law, which made our argument easier to put into practise and even harder to fights against for the opposition. We continue to use his services and I would highly recommend anyone with a company dispute, who want to avoid huge court bills, to contact Graham at 'See you out of court'!"

Tony - Kent

"Graham helped resolve a complex and acrimonious company dispute which otherwise might have led to a costly court case. I would not hesitate to recommend him to others." 

Jonathan - Bristol

"I cannot recommend Graham's services highly enough. His calm, thoughtful, knowledgeable professionalism managed against all the odds to bring a successful mediated resolution to our protracted and bitter shareholder dispute."

Paul - Pembrokeshire

Graham explained everything very clearly, and managed to persuade the justifiably cautious other party that he was acting in the equal interests of both sides. When the day of the mediation came just two weeks later Graham proceeded quickly and fairly, and we ended the day with an agreement that both sides were happy with. I can honestly say that would not have happened without Graham’s assistance - I suspect we’d be still in the process of expensive legal letters back and forth. I would strongly recommend his services to anyone in a a similar situation.” - Simon, London

"The service, guidance and support received from Graham throughout my company exit negotiations was second to none and I was very satisfied with the final outcome. I would recommend Graham to anyone with a boardroom dispute.” 

Bob - Essex

"We found ourselves in a particularly difficult position with plans for expansion being stymied by a Shareholder and Director who had become completely distant from all aspects of the business. Graham Ross guided us through a strategy and was pivotal in our boardroom during a long day of negotiating. All parties ended up shaking hands on a deal which left us all happy and we are now forging ahead with our expansion. If it weren't for Graham we would almost certainly have ended up in court and fighting a bitter battle."

Jeremy - London

"I have had the pleasure of using Graham's services on a number of times, and have always had a solution that probably would not have happened had the problems gone legal. I have always found Graham to be efficient, conscientious and extremely thorough exploring avenues you wouldn’t even think about,. I would recommend him to anybody."

Michael - Burnley

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Shareholder Agreements

Running a business with others is much like marriage. In fact many will say they spend more time with their business partners than with their spouses.

Within that time they will share joy and heartache as fortunes rise and fall and, just like in marriage, the relationship can turn sour as problems develop and differences set root.

Shareholder Mediation

Mediation is the name given to a broad range of processes for assisting in the resolution of disputes without the delay, cost, anxiety and risks associated with asking a judge sitting in a court to determine the matter.

Importantly the mediator can often help the parties reach a creative solution that no judge has the power to impo

Negotiation Strategy

Disputes between shareholders usually persist because one or other, or more often both, of the parties do not fully and totally understand all of the rules of corporate governance, the rights and duties of each person, the options each has and, importantly, the damage each can individually suffer in the absence of reaching a fair and sensible agreement. 

Shareholder Agreements

Running a business with others is much like marriage. In fact many will say they spend more time with their business partners than with their spouses. Within that time they will share joy and heartache as fortunes rise and fall and, just like in marriage, the relationship can turn sour as problems develop and differences set root. In marriage we are seeing growing interest in that US import, the Pre-Nuptial Agreement, which sets out how to deal with a parting of the ways without excessive feeding of lawyers. Within companies the equivalent way to avoid disputes and stalemate situations in private companies is to enter into a Shareholders Agreement.

 

So many problems that come to me as a shareholder mediator would have been very simply resolved had the clients entered into a Shareholder Agreement.

 

A Shareholders Agreement is essentially a contract in which you all set out, in much more flexible way and in much more detail than in the standard Articles of Association, the relationships and procedures within the company and, importantly, the rule book you want to submit to, in relation to a number of issues that can arise in the future. To give but two common examples:-

 

* In the absence of a Shareholders Agreement, if a working shareholder decides to walk away, or is dismissed for misconduct, the others usually cannot force him to give up his shares. If they fail to be able to offer a price with which he agrees, he can sit back and collect his share of dividends and any future share of the sale of the company even though he does not lift a finger to contribute to its future growth. Deciding not to issue dividends is no answer as the company will then be forced to pay unnecessarily high levels of tax as drawings will be treated as salary. In a well written Shareholders Agreement, he can be forced to sell his shares to the others at a price determined, in the absence of agreement, by an independent valuer or, if he is dismissed through misconduct, for a nominal sum.

 

* In the absence of a Shareholders Agreement, if the overwhelming majority of the shareholders, say 90%, wanted to sell to a third party, they could be prevented by the 10% shareholder , who may not work in the business nor make any active contribution to it, refusing to sell his shares. A Shareholders Agreement can contain a clause to force the minority, or say a minority below a certain percentage, to sell.

 

 Other situations that can be covered include:-

                                                        

  • Death or incapacity of a shareholder
  • Relationships between different classes of shares to be issued in the future with varying rights over dividends and voting rights eg for employees
  • Ownership of Intellectual Property Rights
  • Agreement on the extent of the business activities - what happens when targets achieved etc
  • Specific protective rules for minority shareholders
  • Specific arrangements for meetings and business planning
  • Information to shareholders (eg investors) not sitting on the Board
  • Identifying certain Resolutions that you may wish will require higher voting levels to be passed eg 75% or 100%
  • Specific rules for handling disputes so they are not left to fester or drag you all into the courts

 

There is in fact no limit to what could be included. In fact the more situations you anticipate and for which you set out clear guidance and rules as to how to deal with them, the less likely it is that a dispute will arise in the first place. If a dispute does arise, the Shareholders Agreement should also set out the manner in which it can be quickly resolved. In this way you can more easily focus more of your time on making the business work rather than arguing amongst yourselves to the possible detriment of the company and your own interests.

 

Unlike the Articles of Association, which are available online from Companies House website, a Shareholders Agreement is private and cannot be read by the public. It can also be more easily and speedily amended as your business objectives change in time. Importantly for the protection of each individual shareholder, it requires the agreement of all shareholders before being changed.

 

A well drawn up Shareholder Agreement will also have the advantage of making the company more attractive to investors who do not want to see the company suffer through unresolved internal conflict that could cause possible stalemate situations or simply lead to a lack of teamwork and thus less success.

If you ask us to draw up a Shareholders Agreement, you will be able to access a 34 point questionnaire that will help you inform us of which clauses will be most appropriate for your own Shareholders Agreement. Each question explains the nature of the relevant clauses to enable you to make an informed decision.