Avoiding shareholder disputes before they arise

What is a shareholder dispute?

A shareholder dispute is, as the name suggests, a dispute between the shareholders of a company. A shareholder dispute might arise for many reasons. For example, if a majority shareholder is being blocked from implementing a decision or policy by minority shareholders. Or, adversely, a shareholder dispute may arise if minority shareholders feel a majority shareholder is forcing them to make a decision they believe is not in the business's best interests. 

In either case, shareholder disputes can cause a deadlock, often harming a business. In some cases, they can even lead to litigation. 

Litigation should be avoided at all costs, not just because of the financial burden it may put on a company but also because of the potential damage it may cause to a business's reputation and public image.

How to avoid a shareholder dispute before it arises

You can take certain steps to help reduce the chances of a shareholder dispute arising. First and foremost, it is advised that all private businesses have a clearly worded shareholders agreement, which should establish all shareholders' rights and obligations. 

In addition, a shareholders agreement can set out a clear framework for matters including:

• Consulting fees
• Directorial appointments
• Dispute resolution
• Leaving policies
• Profit sharing
• Salaries
• Succession

Provided a business has a sound shareholders agreement, if a dispute arises, it can be resolved swiftly and orderly, resulting in minimal disruption or harm to the business.

It is also vital that detailed records are kept. Much like a good shareholders agreement, proper record keeping can snuff out a shareholders dispute before it escalates to harm a business. 

It ensures transparency between shareholders and serves as evidence of a person's good practices and adherence to the shareholders' agreement. Furthermore, in a dispute leading to litigation, a business will often be compelled to supply the court with its records and account.

To avoid shareholder disputes, it is also advised to seek legal advice as soon as possible. Not only can a trained professional offer invaluable insight during a dispute, but they can also assist in drawing up a shareholders agreement. 

Contact our solicitors for shareholder advice

If you are a business owner and think you may need a shareholders agreement, or if you need advice on a shareholders dispute, contact SO Legal for a consultation.

We have offices in London, Brighton, Eastbourne, Hastings, Uckfield, and Ulverston, and our corporate solicitors work with business owners locally and nationally.