It is not uncommon for an imbalance of control within a new company – rarely a business is set-up by two or more individuals with similar expertise, age and expectations. It is more common that there are distinct differences, either in terms of the degree of day-to-day involvement, the expertise within the company’s business or financial investment and expectations.
One of the business owners may be a minority shareholder with regular involvement as a director, and perhaps with expectations that, once the business becomes profitable, they will receive dividends. This director may be dedicating most of his/her time to the business, will expect a salary to manage their personal expenses whilst also expecting shareholder dividends once the company is doing well.
Alternatively, one of the business owners may be a majority shareholder with little day-to-day involvement in the business but an expectation of a return in terms of income or capital growth of their shareholding. No matter what the reason, whether financial or otherwise, company disputes will often arise between shareholders and directors, in either or (more usually) both capacities.
In the absence of a Shareholders Agreement it will be very difficult and complicated to clarify shareholders’ rights and directors’ obligations in such circumstances.
At Francis Wilks & Jones we can assist in advising on and dealing with negotiations with your business partner and, if required, dealing with the litigated aspects of shareholder disputes.
Some of the most common situations we see are as follows:
Where directors appear to be drawing remuneration but no dividends are being paid to non-director shareholders this can often be an incredible source of frustration for the non-director shareholder, who has limited access to management accounts and has no inherent right to dividends. Such shareholder dispute arise where there is suspicions of directors and difficulties are experienced in deciding how they can be investigated or regulated. It could be that directors are acting in conflict with regard to other personal interests, or they are simply spending money which could otherwise be paid as dividends.
Business DirectionRead more
Sometimes a company’s business may alter or slightly change direction for very good reasons. However, sometimes these changes may be unjustified or difficult to explain. Is the business doing what was originally expected and will the new direction benefit the company (and thus its shareholders) in the long-term? Are directors ignoring the original business plan or a business opportunity?
Shareholder ExitRead more
Sometimes a simple break in the personal relationship between business partners is sufficient to provide a reason to break up the company.
Alternatively it may be that there are distinct business differences or life choices which lead to the need to split. A company will quite often be more valuable as a trading business than the sum of its parts broken up and (in the absence of a Shareholders Agreement) this could lead to difficulties in persuading a buy-out and ultimately the company could be placed into insolvency (thus further diminishing the value of company assets).
However, if a Shareholders Agreement exists or a buy-out is considered possible, there remains the need to facilitate a valuation of the company, an account of directors’/shareholders’ loans and other transactions with the company and both parties will need to agree a price based on these factors. The only alternative may be a proposal to sell the company on the open market.
Please download our booklet entitled What Can Shareholders do to Exit a Company? for more information.
Loss of Property/Allegations of FraudRead more
It is often the case that where one (or more) of the shareholders is also a director then the difference between, for example, business expenses and personal expenses becomes blurred and, in the worst case scenario, this can lead to problematic tax liabilities or allegations of impropriety or fraud (See “Claims Against Directors”). Alternatively a director may be just removing assets from a company without his co-directors (or the shareholders’) permission.
Where a director/shareholder is alleged to have committed fraud and the minority shareholder has no power to deal with this internally, then the only recourse is to litigation.
Misconduct by company directors, including failing to act in the company’s best interests, is a serious matter – please see our booklet " Directors’ Duties and Liabilities: A Handy Guide" for further information on this issue. Our webpage “Claims Against Directors” also deals with these issues from the director’s point of view.
At Francis Wilks & Jones we have considerable experience in resolving such company disputes, whether you are a director, minority shareholder or even a majority shareholder.
I contacted Francis Wilks & Jones with regard to a client of mine who had little means and who was facing difficulties with his co-shareholders, who he alleged were drawing monies out of the company without my client’s authority and further limiting any payments to my client, who was also a director. At the time my client was facing retirement with no prospect of obtaining any return for his shareholding.
However, I found Mr Downie of Francis Wilks & jones of great assistance in understanding all of the companies’ financial information going back over a period of 20 years and together we were able to negotiate and extract an outcome for my client that was beyond his initial expectations financially and additionally he was prepared to enter into a funding arrangement that meant that my client would not have to pay any associated legal fees. That aside, I found Francis Wilks & Jones very professional, they always responded proactively and I always felt we had a confident and knowledgeable personnel supporting our needs. I would definitely refer any such similar matter to them again, solely in my client’s interests.
I was introduced to Francis Wilks & Jones with little or no expectation as to whether they could assist me. I had spent two decades with my co-shareholder and co-director running a small company that we developed together, but it felt in latter years that my income was not growing with the company as opposed to my co-shareholder who appeared to be doing very well. As time went by I was being paid a pittance and was struggling to work out how I could leave the business and sell my shares.
I was introduced to Francis Wilks & Jones, a firm in Central London, who agreed to take my instruction on the basis of a funding arrangement which meant that they were only paid if my claim was successful. I found them very supportive and friendly, with partner-led involvement and I was always able to speak to the partner dealing with my matter and who managed it very professionally through to completion. I would recommend Francis Wilks & Jones to anyone facing a similar situation.