What are the most common types of shareholder disputes?

A dispute between shareholders is quite common in limited companies and can range from minor disagreements to more problematic conflicts. Ideally, any shareholder agreement your company has in place should be able to provide a framework for resolving disputes quickly, regardless of how significant they are. To ensure this is the case, however, it is often a good idea to get expert legal advice to help you draft the agreement.

Some of the most common types of shareholder disputes include:

• A falling out amongst shareholders: sometimes, disagreements can arise over something as simple as a personality clash or a difference of opinion on an issue.
• Failure to communicate properly with minority shareholders: no matter how many shares a shareholder has, they have a right to be informed about the business’s financial affairs. Where majority shareholders make decisions without proper discussions, conflict can occur.
• Unfair pay or benefits: this kind of dispute can arise if one shareholder is earning more money than others think is fair, or if a shareholder sends clients to another business they own or control.
• A director or shareholder acting in direct breach of an agreement: agreements are designed to prevent disagreements or conflicts, so when a director or shareholder acts in direct violation of this, the consequences can be severe.

What are the legal rights of shareholders?

All shareholders, regardless of how many shares they own, are entitled to certain rights, as defined by the Companies Act 2006. You should be aware of the rights you are entitled to before entering into a shareholder agreement, but particularly when disputes or disagreements arise. These rights include, but are not limited to:

• The right to call a general meeting
• The right to copies of the company’s accounts and reports
• The right to vote on resolutions
• The right to a share certificate
• The right to have your name entered on the Register of Members

Some shareholders may have more rights than others, depending upon how many shares they own. For instances, some may have the right to have a company’s accounts audited, or the right to request the removal of a director.

How can shareholder disputes be resolved?

Shareholder disputes can be resolved much quicker if an experienced solicitor has properly drafted a shareholder agreement. The agreement should make all rights and responsibilities abundantly clear to all shareholders and should also ensure that the company is protected against harm arising from the departure, illness or untimely death of a shareholder.

In this latter circumstance, Key Person insurance cover or another form of insurance may be utilised to ensure that a deceased shareholder's family are looked after in the event of their death, without damaging the financial foundations and stability of the company. There are many important factors for you to consider when entering into a shareholder agreement. If you've been offered a shareholder agreement or are party to an existing shareholder agreement, it's worth asking one of our experienced contract lawyers to review it, together with the relevant Articles of Association.

Why choose Slater and Gordon’s shareholder disputes solicitors?

It's always better to make sure that your position as an individual shareholder is protected from the outset, to avoid a dispute arising later. This type of dispute is far more costly than having your shareholder agreement reviewed at an early stage to understand your rights and obligations as a shareholder.

Our friendly and compassionate employment team have an outstanding track record of supporting shareholders and limited companies draft a solid shareholder agreement, and many of our solicitors have received recognition from esteemed legal publications such as Chambers and Partners and the Legal 500. With a wealth of experience and expertise, you can trust that you are in good hands.