I'm a minority shareholder - get me out of here!

Commercial Law firm St James’ Square have dealt with and advised on many types of disputes over the years.

Disputes can arise at any time and they are almost impossible to plan for. Businesses are often set up by shareholders with some very distinct differences whether that be age, involvement, expertise or level of investment.

With these differences in mind, it’s not surprising that disputes regularly arise within companies regardless of industry or size. 

The dispute resolution team at St James’ Square is headed up by Partner Scott Cable and together with Solicitor Adam Chaffer they regularly advise both companies and individuals in respect of disputes between shareholders or between the board of directors and the shareholders.

“In law, companies are classed as being separate legal entities,” Scott explains. “This is a defined status which brings with it a raft of complex and technical rules which need to be understood when approaching a dispute between the shareholders.

At the same time, the role of the shareholders and the directors are distinct and separate. A shareholder is the owner of the business and a director is responsible for the day to day operation of the business.”

In most companies the power is vested in the directors although shareholders also retain some reserved power. The precise balance of power will depend on the construct of the company’s constitutional documents. Individuals can also be both a shareholder and a director. However it is crucial that they keep the two roles clear in their minds, because blending the two, even inadvertently, can cause conflict and disputes.

Whilst there is no one cause to an issue between shareholders or between the board of directors and shareholders crystallising into a shareholders’ dispute, there are a number of common themes. These include:

  • Breach of a provision of the company’s Articles of Association or a Shareholders’ Agreement which form the company’s constitutional documents
  • Disputes relating to the conduct of directors when considering the statutory and fiduciary duties which directors are expected to adhere to
  • Disputes relating to the direction, strategy and management of the company
  • Disputes relating to the distribution of dividends
  • Situations where a director exits the business and sets up in competition
  • Lack of information being communicated from the board of directors to shareholders

St James' Square - dispute resolution - shareholders

Adam adds, “Shareholders are individuals who have invested their income in a company with the common aim of generating a return. When a dispute manifests itself, profitability and business relationships can be negatively affected. We know how important it is for a legal team to act fast in developing the right solution to resolve the dispute. This is often via negotiation, but sometimes it’s necessary to go down the litigation route.”

As no two shareholder disputes are the same, it stands to reason that the method to resolve them will have to be different. A successful resolution will depend on the factual matrix and documentation surrounding the dispute.

To help resolve disputes, Scott and Adam work very closely with their clients and invest a considerable amount of time at the beginning of the process to fully understand the situation. After considering all of the information they will then will develop a bespoke dispute resolution strategy that will deliver the best outcome for their clients.

If you require legal advice for any kind of dispute please call us on 0191 466 1000 or email either Scott Cable or Adam Chaffer who will provide you with best practical advice to resolve your dispute.

Feb 2020