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Shareholder Disputes: What you NEED to know [GUIDE]

Last updated:

November 06, 2022

Verified by Lawhive solicitors

Overview

A shareholder dispute is when two or more shareholders in a company disagree over something to do with the company.

What is a Shareholder Dispute?

A shareholder dispute is when two or more shareholders in a company disagree over something to do with the company.

Shareholder disputes usually involve either a majority shareholder blocking minority shareholders from doing something or a minority shareholder being pressured by a majority shareholder to do something.

Shareholder disputes arise for a number of reasons other reasons, such as:

  • Disagreements over the control and management of the company
  • Shareholders not performing their duties or performing them poorly
  • Money being distributed unfairly
  • Conflicts of interest
  • Dishonesty
  • Hidden payments or unfair payments
  • Shareholders not being informed about the company’s finances
  • Shareholders not being informed about or included in meetings

You should try to resolve your shareholder dispute during a general shareholder meeting. However, when an issue cannot be solved during one of these meetings, you should seek legal advice from a solicitor. A solicitor can help you understand your rights and obligations as a shareholder as well as advise you on how to resolve shareholder disputes.

What about Partnership Disputes?

Like shareholder disputes, partnership disputes are when two or more people who own and run a company disagree over something to do with the company. Partnership disputes commonly involve someone wanting to leave, breach of duty or misconduct. The personal nature of business partnerships make partnership disputes hard to resolve privately. You should seek legal advice early on in your partnership dispute. A solicitor can help you resolve your issue and put in place safeguards to stop any further issues.

Do I need a solicitor?

In most cases, you should hire a solicitor to help you resolve a shareholder dispute.

DIY Score:

2

/ 5

You'll likely need a solicitor for a shareholder dispute

Solutions

Recommended

Resolve issue at general meeting

Free

General meetings are designed for shareholders to discuss aspects of the company. You should address the issue you are having during a meeting. Shareholder disputes are often discussed, negotiated and resolved this way.

Buy out

If you want to avoid a dispute all together, you can purchase the shares owned by the other shareholder (or shareholders). This way the other shareholder can decrease their responsibilities and cut their losses.

Negotiation

1 week

You can hire a dispute resolution specialist such as a solicitor to negotiate for you. They will reach out to your business partner and will try to come to find a solution that both sides agree with. This is cheaper and faster than going to court.

Mediation

1 week

Mediation is a process where an independent third party tries to find a solution that will end your dispute. You can hire a solicitor to represent you during mediation. Using mediation is often cheaper, more effective and faster than going to court. If you choose to take the dispute to court, a judge will likely ask you to first try to resolve the issue in mediation.

Going to Court

£300 - £10000
8 to 16 weeks

If nothing else works, there are a number of professional and private claims you can make to a court. These include personal claims, breach of contract claims, negligence claims and prejudice claims. You will need to hire a solicitor to go to court as well as pay court fees. This is the longest and most costly option, however, it guarantees that your shareholder dispute is legally resolved.

What steps are involved?

Step 1

Talk to a Solicitor

You should seek advice early on in your Shareholder Dispute. A solicitor will advise you on what your best next step forward is, based on your situation.

Step 2

Claim under the Shareholders Agreement

If the company has a Shareholder Agreement, your solicitor will explain what rights and protections you have according to the document. If you can prove there are shareholder rights, rules or obligations that are not being followed in line with the Shareholder Agreement, your solicitor will help you argue a case that the agreement has been broken. The court will resolve your dispute and decide if a shareholder has breached their duties under the Shareholder Agreement.

Step 3

Derivative claim

Your solicitor will advise you to make a derivative claim if your issue is with the director of the company. A derivative claim means going to court and arguing that your dispute has been caused by the director of the company for reasons of negligence or breach of duty.

Step 4

Claim of Unfair Prejudice

If your dispute is about fairness or prejudice, your solicitor will apply to the court for an unfair prejudice petition. The court will make a final decision, if they have found unfairness, they will punish the guilty shareholders by taking away their shares.

Step 5

Seek Compensation from the Company

Your solicitor can advise you to personally sue the company you have a Shareholder Dispute with. Depending on your case, this could be you suing for an injunction, specific performance or damages.

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Rating

4.8

Evidence and documentation

Evidence

  • Written record of Shareholder’s Actions
  • Written record of Shareholder Meeting

Documentation

  • Shareholder Agreement
  • Share Certificate

Cost

  • We estimate Shareholder Disputes to cost £379 on average to resolve
  • Going to court will likely be more expensive.

Factors that effect cost

  • whether you have a Shareholder Agreement
  • Choosing to go to court

Time

  • The fastest way to resolve a shareholder dispute is outside of court, which takes on average 4 weeks.
  • In contrast, if you take your dispute to court, the case will take around 8 to 16 weeks.

Factors that effect time

  • whether you have a Shareholder Agreement
  • Choosing to go to court

FAQs

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Information about shareholder dispute

Things you'll need to start your case

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