There are two types of shareholders in a business – majority shareholders and minority shareholders. There are many reasons why disputes might arise between shareholders. The key thing is to know how to resolve them.

Some examples of circumstances which may give rise to a dispute include (i) shareholders either being, or feeling as though they are being, left out of meetings or not being kept properly informed in respect of company information that they are entitled to, (ii) disagreements over how the company is being run (particularly if it is not generating or at least distributing profit to shareholders) and (iii) shareholders taking the view that there has been a breach of fiduciary duties by one (or more) of the company directors.

Ideally, any disputes between shareholders shall be dealt with during shareholder meetings. However, where concerns are not properly addressed at these meetings, other avenues may need to be explored. To identify the options available to the shareholders, parties should check (i) the company Articles of Association and (ii) the Shareholders Agreement (if there is one). Beyond this, some options available to resolve shareholder disputes are:-

  1. Unfair Prejudice Proceedings – Where a minority shareholder alleges that the affairs of the company have been conducted in a manner which causes unfair prejudice to its interests, that shareholder may raise unfair prejudice proceedings against the majority shareholder under Sections 994 and 96 of the Companies Act 2006. In such actions, there are a range of remedies which a minority shareholder may seek, including having its shareholding purchased by the majority shareholder at market value (adjusted to take account of any impact of the wrongdoing by the majority shareholder).
  2. Derivative Proceedings – These are actions which are brought by a shareholder, or shareholders, on behalf of the company. An example of when such proceedings might be raised is where there is an alleged breach of fiduciary duties by one or more of the company directors. For this type of action, the court's permission is required to allow a shareholder to step into the shoes of the Company and pursue an action.
  3. Negotiation/Mediation – Shareholder disputes are like any other dispute in that they may be resolved without the need to spend the time and money associated with court proceedings. Direct negotiation between parties, or their legal advisers, may achieve a resolution. Alternatively, a mediation facilitated by a third party mediator may be an effective tool in bringing the dispute to an end.
  4. Purchase of Shares – If resolution of a dispute is not progressing well, parties may wish to consider buying out the disputing shareholder's shareholding (subject to the provisions of any Shareholders Agreement and the Articles of Association). It is likely that a valuation of the shareholding will require to be carried out by an independent third party valuer.

The list of options set out above is by no means exhaustive. If you, as a shareholder in a company, find yourself in dispute with your fellow shareholders (or indeed with a director of the company), please get in touch and we can provide tailored advice.