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In order for a business to function effectively there must be a strong relationship between the owners of the business (its shareholders) and those responsible for its day-to-day management (the directors).
When that relationship breaks down, and a dispute occurs between the directors and the shareholders, lasting damage can be done to the business. This can affect the profitability of the business and its ability to trade.
At Canter Levin & Berg Solicitors, our Dispute Resolution Solicitors will work to resolve a dispute between the directors and shareholders in your business. Call 0151 239 1000 today to find out how we can you and your business.
In any business situation, there may be some tensions between the shareholders and the directors of a business. In most situations, these tensions can be overcome, through effective communication between the directors and shareholders. However, if this communication breaks down, then a dispute might arise. Some of the common reasons why this might occur in a business environment include:
Anyone formally appointed to the Board of Directors for a UK company will have to take on certain legally binding duties as part of their directorship.
The first of these duties requires a director to agree to follow the company’s constitution and acting for proper purposes e.g. not plundering the assets of the company. Directors also have a duty of care, requiring them to carry out their work as a director with a reasonable level of skill and competence. The other duties of a Director include avoiding conflicts of interest, agreeing not to take any benefits from a third party, disclosing any self-dealing and lastly, directors have a duty to promote the success of their company.
If a director breaches one or more of these duties then their company may take legal action, for example taking out an injunction. A dispute between directors and shareholders might occur if some or all of the shareholders feel that a director has breached his or her duties to the company.
It is quite common for a board of directors to have differences of opinion on the strategy and management of their company. Similarly, shareholders might not necessarily see eye-to-eye with the board on a variety of strategic issues. If these differences cannot be resolved through the usual means of communication, then it may cause tensions that spill over into a dispute.
Another potential source of disputes is the dividend policy of the company, particularly if that dividend policy favours some shareholders over others.
Differences between the salaries of the various directors on the company board can also lead to a dispute, particularly if the reason for the differences in pay is not communicated to all the board members, or if the role of each board member is not properly defined.
Directors of a company not only have a duty to avoid any conflict of interest, but also to avoid the possibility of a conflict of interest. This means that a director of a business must not make use of a business opportunity that could have been used by his or her company without the approval of the company.
A related issue can crop up when one or more directors of the company have separate business interests, in another company for example. Whilst these other business interests might not form a conflict of interest, the shareholders or other board members might feel those separate business interests are distracting them from the duties to the company.
One of the most important jobs the board of directors have with respect to the company’s shareholders is to keep them fully informed about the financial position of the company. Any failure to communicate important financial information to the shareholders, if for example the business is losing money, is a very serious matter and could quite understandably cause a dispute.
If shareholders are excluded from meetings held by the board, or if they are not informed that a board meeting is being held, this is likely to create distrust between those shareholders and the board and could result in a dispute.
A shareholders agreement is the contract between a company and some or all of its shareholders which details all the aspects of the relationship between the parties, including the rights and obligations of each of the shareholders. The shareholders agreement and the company’s articles of association, when taken together, form the internal rules by which the company is governed.
A breach of either the shareholders agreement or of the articles of association can therefore quickly create a dispute between shareholders, or between the directors and the shareholders.
There are legal options available to you when dealing with a dispute between directors and shareholders. Which option you choose will depend on the nature of the dispute and whether you are a director or a shareholder. For shareholders, the legal options available will differ depending on the size of their share holding in the company.
Whilst it is difficult for a minority shareholder to take formal court action, it may be possible for a legal professional, through skilful negotiation, to get results. There are also a range of alternatives legal processes available to resolve shareholder disputes, which our solicitors will be able to go through with you.
For disputes between board members, then it may be possible to use mediation or another form of collaborative law to settle this dispute, by giving both sides the opportunity to air their points of view and their grievances, before a solution is reached.
Disputes between shareholders and between shareholders and directors are notoriously involved and immediate action is usually required in order to reach a suitable resolution. The sooner this resolution can be reached, the smaller the impact the dispute will have on the company.
At Canter Levin & Berg, our Dispute Resolution Solicitors have the experience to advise you or your business when dealing with a dispute between shareholders or directors. Our solicitors will use their extensive knowledge and experience of company law issues to resolve the dispute as quickly and cost-effectively as possible, whilst minimizing the risk and ongoing disruption to your business. For a free 10 minute consultation over the phone with one of our Solicitors to find out exactly how we could help, call today on 0151 239 1000.