Owning a business with multiple shareholders can provide unique insights, a wealth of knowledge and extra finances to your company. However, commercial litigation disputes can arise between passionate shareholders who have different visions for a business. Sometimes, a shareholder dispute can require legal action, especially if more powerful shareholders are seeking to overpower smaller business partners. Also, when disputes occur in a foreign country, the issue can be hard to navigate.
In this guide, we will explain the meaning of "shared purpose," examples of shareholder disputes and how minority contributors can protect their rights. We will also discuss how you can resolve your dispute cross-border, and how Brexit may affect your claim.
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How beneficial shared purpose is, from the director to the staff
Find out how shareholders commonly disagree, from a breach of contract to a lack of fiduciary duty
Here's how minority partners can protect their assets from an aggrieved shareholder
Solving disputes cross-border can be difficult, but shareholder dispute solicitors can help
Discover more about the common problems those bringing a claim can face
Find out how Brexit can hinder your chances of success
Our solicitors have years of experience and vast knowledge to help you out
"Shared purpose" is the idea that everyone within a business has the same missions and goals in mind, from the director to the staff. Where shared purpose exists, there is drive and motivation, which leads to a happier workforce and better business processes. A better workplace culture benefits everyone within a company, especially shareholders. However, when shareholders do not have a shared purpose, issues can arise.
When views misalign, it can lead to a lack of communication and errors within the business that can cause problems. It can also lead to certain shareholders trying to overpower others, which can be detrimental to your business. When your business becomes affected and talks have fallen through, it is time to seek legal advice.
Shareholder disputes are common and present themselves in various ways. These include:
Shareholders within a company, as a minimum, are required to treat each other honestly and with respect, no matter how big their share in the business is. A lack of decorum can lead to disputes, especially between majority and minority shareholders.
One of the most common reasons for shareholder disputes, disagreeing over how the business should be run can not only lead to legal action, but can hold your company at a standstill. It can also lead to firing and unfair dismissals, bringing a bad reputation to your business.
If discussions between shareholders fall through, some may resort to breaching their contract to get their way. Signed contracts are legally binding, so if you believe one has been breached, you should seek legal advice immediately.
Minority shareholders have less shares and can often be overlooked when making big decisions about the business. They may also be pressured into making decisions they don't agree with and can often be patronised.
If you have found yourself in a shareholder dispute and in-house talks don't seem to be progressing, you should talk to our commercial lawyers today.
There are various ways that minority shareholders can protect their rights, but under the Companies Act, their rights are quite limited. If there are no shareholder agreements in place, minority shareholders will have basic rights and majority shareholders can still cast them out.
Minority shareholder rights can be improved under any articles or agreements in place in the business. It is important to set up a shareholder’s agreement before shares have been acquired, as when a dispute arises, it is often too late. An important provision for a shareholder agreement is a minority shareholder’s right to information, as a majority shareholder may be reluctant to disclose financial information.
Minority shareholders can also benefit from vetoes, as they can block business decisions such as large investments, new ventures and sales and mergers. Minority shareholders can bring claims against unfair prejudice and bad business management but will need evidence. It is advised that minority shareholders seek appropriate legal advice before making claims, and a third-party mediator is advised for any discussions.
Within business, the high court is always best avoided as it can bring negative publicity to your company. Holding a general meeting is the advised first step, but minority shareholders can often be overridden. A professional mediator can help generate a resolution that all parties are happy with. If your partnership dispute is cross-border, it may be worth looking for a mediator who understands their culture which can help diffuse the dispute further.
Cross-border commercial disputes can be difficult, as there are different jurisdictions to be aware of. In business, if a contract has been signed and rules are breached, common law and jurisdiction may not apply. However, it is always best to seek out professional legal advice.
When looking into cross-border shareholder disputes, it is important to understand that strict data and privacy laws may inhibit you to collect certain evidence for a claim. Liability may also fall upon you if you fail to adhere to legal investigative steps. Therefore, it is beneficial to seek legal advice from Giambrone & Partners multijurisdictional lawyers who are familiar with the country that the individual or business where the dispute arises
If you are looking to settle your claim with an individual or business within an EU country, Brexit has affected how you can bring court proceedings, but not necessarily how you can implement alternative dispute resolution like mediation. The UK was once a part of the Lugano convention which provided collaboration for applicable law and jurisdiction. Now, jurisdiction applies to the country where litigation is taking place.
If you have a jurisdiction clause in your contract, then legal action will take place in the mentioned jurisdiction. If not, you will need to take legal action to choose your jurisdiction.
Our highly experienced international solicitors have worked on various cases concerning shareholder disputes and can assist if your dispute crosses borders. We can help you understand your rights as a minority shareholder and can provide support during the mediation process.