In business, disputes often arise between shareholders, directors and/or partners. Disputes within a business can surface in a number of different and complex ways, and coming to a solution can often be exhausting. With the right advice, however, it can be done quickly and amicably.
If a shareholder or director dispute arises within your business, it can be particularly stressful and expensive. Seeking advice at the earliest possible stage will often be the most cost-effective route to reaching a good-natured and commercially efficient resolution.
Examples of Shareholder & Director Disputes
Some of the most common causes of shareholder and director disputes include disagreements over:
- The company’s strategy;
- A director breaching their duties;
- Disparity between salaries/dividends;
- Salaries paid to shareholders who also work for the company;
- A board miscommunication with shareholders, whether on purpose or not; and
- the price to be paid when a shareholder is bought out.
These disputes can potentially paralyse a company while the directors and shareholders try to come to a solution.
What rights do shareholders have?
While the directors of a company control the day-to-day aspect of a company, it is more often than not the shareholders who have the most power. With a majority vote, shareholders can dismiss directors and force the company to take their desired action, whatever that might be.
This, however, can only happen if the shareholder(s) in question have a majority. Any action that a business takes will need to be agreed upon by a majority of shareholders, meaning minority shareholders hold a little less power.
Shareholders also have certain statutory rights that can be of assistance when a dispute occurs. These rights include the right to inspect company registers and to force the company to call general meetings. Often, either of these two courses of action can resolve a potential dispute before it has officially begun.
In all, the rights that shareholders have are:
- The right to share profitability, in the form of dividends;
- The right to influence the board;
- The right to vote in general meetings;
- The right to sue for wrongful acts;
- The right to inspect corporate books and records;
- The right to transfer shares.
If you, as a shareholder, believe that one of these rights has been violated, you may have a claim for a dispute against the board of directors.
What are the responsibilities of a director?
Directors are appointed by shareholders to run the business. They manage the day-to-day affairs, participate in board meetings and ensure that the company’s obligations are fulfilled.
There are seven duties under the Companies Act 2006, which all directors must adhere to. These seven duties are:
1. To act within powers
This states that directors must act in accordance with the company’s constitution and only exercise their powers for the purpose for which they are conferred. Directors, therefore, need to be familiar with their company’s constitution.
2. To promote the success of the company
This is primarily for the benefit of the company members and shareholders as a whole. Directors must think about the interests of the company before making decisions. They must, using their own business judgement, decide what is most likely to allow the company to succeed.
3. To exercise independent judgment
Directors must act independently, without giving up the power of business management to any third-party. They may obtain advice, but any exercise is carried out under their own will.
4. To exercise reasonable care, skill and diligence
Reasonable care, skill and diligence are required at all times when carrying out their duties. This is judged by a minimum objective standard of what would be reasonably expected of any other director in a similar field of work.
5. To avoid conflicts of interest
Directors must avoid direct, or indirect, interests that may conflict with the interests of the company. This is particularly crucial when thinking about competing businesses.
6. Not to accept benefits from third parties
This is in relation to accepting benefits from third parties which may alter the way in which the director acts in relation to the company. It would include, but is not limited to, taking bribes.
7. To declare interests in transactions or arrangements with the company
If a transaction or arrangement with the company may benefit a director, the director must declare the nature and extent of their interest in the other party to the other directors, before the transaction or arrangement is made.
What are The Articles of Association?
The Articles of Association are a set of rules that regulate how a company should be run and administered. They form a type of contract that is agreed between the company and the shareholders.
The matters that the articles of association regulate are:
- The issuing of shares;
- The appointment of directors;
- Arrangements regarding forced sales of shares;
- Procedures relating to board meetings; and
- Procedures relating to shareholder decisions
The directors are not a part of this contract and, as such, will not be in breach of contract for breaching anything under the articles. As mentioned above, directors do, however, have their own director’s duties and are subject to their directors’ service agreements.
How can Smooth Commercial Law help you?
At Smooth Commercial Law we have extensive experience of dealing with a wide variety of shareholder and director disputes. Our aim is to reach an amicable resolution to any issue as quickly and as cost-effective as possible.
Our experienced commercial disputes team will guide you through your case to ensure as little disruption as possible. Our Shareholder & Director disputes team can help with the following:
- Breach of shareholder agreements
- Fraud actions
- Partnership and LLP disputes
- Director disputes and breach of director duties
- Derivative claims
- Rights to purchase agreements
- Unfair prejudice petitions
- Winding up petitions
Our most recent case
Smooth Commercial Law recently acted on behalf of Mr V, involving a claim in which company law was broken. Minority shareholder Mr V was unlawfully removed from the company without board approval. He was left with no choice but to seek legal advice from our shareholder and director disputes team.
With our help, Mr V successfully brought a claim against the directors of the company for acting in a manner which prejudiced his interest in the business. We managed to resolved the dispute for Mr V in an amicable way.
Mr V said of his case with Smooth Commercial Law -
I honestly cannot thank Smooth Commercial Law enough. They dealt with my case in an efficient and professional manner. The dispute was solved with a minimum of fuss.
Get in touch
If you would like to speak to one of our expert team members about your shareholder and director dispute, you can do by calling the number at the top of this page, or by completing an enquiry form.