Welcome to our free comprehensive guide for company shareholders. Written by genuine experts in this area of the law, the guide will help answer many of the questions you have. Or just call one of our shareholder dispute team today for a free consultation. With over 20 years' experience helping business owners, our team can help resolve your issues fast.

1. Introduction

Why is it important to understand your shareholder rights and responsibilities?

Understanding your shareholder rights and responsibilities is crucial in maintaining a healthy business environment and protecting your interests. Shareholder rights include voting on key issues, receiving dividends, and accessing company records, while responsibilities might involve adhering to company policies and ethical practices. By being well-informed, you can prevent shareholder disputes and ensure that your voice is heard in company decisions.

What are the common shareholder disputes you might face?

Shareholder disputes are common and can arise from various issues such as disagreements over business strategy, failure to pay dividends, or breach of directors’ duties. These conflicts can destabilise a company, leading to financial loss and operational disruptions. Understanding the nature of these disputes can help you prepare for and address them effectively, ensuring the smooth running of your business.

How can a positive, solutions-led approach help resolve these disputes?

A positive, solutions-led approach focuses on finding practical and amicable resolutions to disputes. By emphasising negotiation, mediation, and legal expertise, we can help you address conflicts proactively and constructively. This approach not only helps in resolving shareholder disputes but also fosters a cooperative business environment, reducing stress and uncertainty for all parties involved.

2. Company Deadlock

What causes a company deadlock and why is early intervention important?

A company deadlock occurs when equal shareholders disagree on key business decisions, often leading to a complete standstill, especially if the shareholders are also involved in the management of the business. Common causes include differing visions for the company’s future, personal conflicts, and financial disagreements. Early intervention is vital to prevent the business from failing and shares from becoming worthless. Addressing the deadlock promptly can save the company and maintain its value.

How can negotiation and mediation resolve a deadlock situation?

Negotiation and mediation are effective tools for resolving a shareholder deadlock. Through structured discussions with legal assistance, solutions can often be found. For more difficult cases, we use trusted third party facilitators to help. We encourage shareholders to explore mutually acceptable solutions. Mediation allows for a confidential and flexible approach, helping to preserve business relationships and find a practical resolution without the need for court intervention.

When is court intervention or litigation necessary for resolving a deadlock?

Court intervention or litigation becomes necessary when negotiation and mediation fail to resolve the deadlock. Legal proceedings can provide a definitive solution, such as court orders for the sale of shares or company dissolution. While litigation can be time-consuming and costly, it may be the only option to break the deadlock and protect the company’s future.

3. Disputes with Management

What are the common issues leading to disputes with management?

Disputes with management can arise from various issues, including failure to pay dividends, breach of directors’ duties, and abuse of director loan accounts. Other common problems include share dilution, business strategy conflicts, fraud, and incompetence. These issues can destabilise the company and harm shareholder interests, making it essential to address them promptly.

How can you address disputes with management?

Addressing disputes with management involves understanding the root cause and exploring internal resolution mechanisms. This may include discussions with the board, reviewing company policies, and seeking mediation. If internal efforts fail, legal options such as filing an unfair prejudice claim or a derivative claim under the Companies Act 2006 may be necessary to protect shareholder rights.

4. Director Removal

When is director removal necessary and what are the legal requirements?

Director removal may become necessary when a director’s actions harm the company, such as breaches of fiduciary duty, misconduct, or incompetence. The legal requirements for removal depend on the company’s articles of association and shareholder agreements. Understanding these documents is crucial to determine the process and grounds for removal.

What legal frameworks govern director removal?

Director removal is governed by the company’s articles of association and any existing shareholder agreements. Additionally, the Companies Act 2006 outlines the statutory duties of directors and provides mechanisms for their removal if they fail to fulfil their responsibilities. These legal frameworks ensure that the process is conducted fairly and lawfully. Our team can help you understand your rights and remedies as a shareholder.

How can you successfully remove a director?

Successfully removing a director involves following the prescribed legal process, which may include a shareholder vote or a board resolution. It is essential to document the reasons for removal, such as breaches of fiduciary duties or misconduct, and to comply with all procedural requirements. Legal advice is essential to help navigate this complex process and mitigate potential disputes.

5. Family Business Disputes

What are the unique challenges in family-owned businesses?

Family-owned businesses face unique challenges, including personal conflicts, succession planning, and balancing family and business interests. Disputes can arise from disagreements over leadership, roles, and compensation, complicating the resolution process. These conflicts can harm both the business and family relationships if not managed effectively.

How can effective succession planning prevent family business disputes?

Effective succession planning involves preparing for leadership transitions well in advance. This includes identifying potential successors, providing necessary training, and setting clear guidelines for the transfer of roles and responsibilities. A well-structured plan can prevent disputes by ensuring a smooth transition and aligning the interests of all family members involved in the business.

What strategies can help manage personal and business conflicts in a family business?

Managing conflicts in a family business requires clear communication, defined roles, and a formal dispute resolution process. Regular family meetings, involving external advisors, and setting boundaries between personal and business matters can help mitigate conflicts. Legal agreements, such as shareholder agreements, can also provide a framework for resolving disputes amicably.

6. Minority Shareholder & Unfair Prejudice Claims

What risks do minority shareholders face?

Minority shareholders are at risk of exploitation by majority shareholders, including actions like share dilution, refusal to pay dividends, and exclusion from key decisions. These actions can undermine the value of their investment and their ability to influence the company’s direction. Understanding these risks is essential for minority shareholders to protect their interests.

How can minority shareholders protect themselves?

Minority shareholders can protect themselves through legal remedies such as unfair prejudice claims and derivative claims under the Companies Act 2006. These claims allow them to challenge actions that harm their interests and seek redress. Additionally, having a robust shareholder agreement that includes protective provisions can prevent exploitation and ensure fair treatment.

What are some practical examples of successful claims by minority shareholders?

Practical examples of successful claims include cases where minority shareholders proved unfair prejudice by showing that their rights were disregarded or that they were excluded from key decisions. In such cases, courts have provided remedies such as ordering the purchase of minority shares at a fair value or reversing prejudicial actions. These examples highlight the importance of legal intervention in protecting minority shareholders.

7. Non-payment of Dividends & Unfair Payment Policies

What is the legal context of dividend payments?

Dividend payments are at the discretion of the company’s directors, who must act in the best interest of the company and its shareholders. While there is no legal obligation to declare dividends, directors must ensure that any decision not to pay dividends is fair and in line with their fiduciary duties. Failure to do so can lead to disputes and claims of unfair prejudice.

When can you claim unfair prejudice for non-payment of dividends?

Shareholders can claim unfair prejudice if they believe that the decision not to pay dividends is unfairly discriminatory or harms their interests. For example, if dividends are withheld to benefit majority shareholders at the expense of minority shareholders, this could constitute unfair prejudice. Legal action can compel the company to address these issues and ensure fair treatment.

How can you challenge non-payment or unfair dividend policies?

Challenging non-payment or unfair dividend policies involves reviewing the company’s financial decisions and the rationale behind them. Shareholders can seek legal advice to determine if the directors have breached their fiduciary duties or acted unfairly. If necessary, legal claims can be filed to address these issues and seek remedies such as the payment of dividends or compensation for unfair treatment.

8. Business Exit & Share Sales

How can you maximise the value of your shares on exiting a business?

Maximising the value of your shares when exiting a business involves careful planning and negotiation. Shareholders should ensure that their shares are valued fairly, considering the company’s financial health and future prospects. Legal advice can help identify potential pitfalls and ensure that the exit process is conducted smoothly and profitably.

What are the common problems during a business exit?

Common problems during a business exit include disputes over share valuation, attempts to dilute share value, and disagreements on the terms of sale. Minority shareholders may face additional challenges, such as exclusion from negotiations or unfair treatment. Addressing these issues proactively can prevent conflicts and ensure a fair exit process.

How do pre-emption rights affect the sale of shares?

Pre-emption rights give existing shareholders the first opportunity to purchase shares before they are offered to external buyers. This ensures that current shareholders can maintain their proportional ownership and control. Understanding and exercising pre-emption rights can prevent unwanted changes in ownership and protect shareholder interests during share sales.

Are there case studies of successful business exits?

Yes, case studies of successful business exits provide valuable insights into the strategies and best practices that lead to a smooth transition. These examples highlight the importance of legal advice, fair share valuation, and effective negotiation. Learning from these cases can help shareholders navigate their own exit processes successfully. Our team of experts have years’ experience dealing with shareholder exits

9. Company Insolvency Problems

How does insolvency impact shareholder value?

Insolvency can significantly impact shareholder value, as it often leads to the liquidation of company assets and the loss of investment. Shareholders may receive little to no return if the company’s liabilities exceed its assets. Understanding the early signs of insolvency and taking proactive measures can help mitigate these risks and protect shareholder interests. At Francis Wilks & Jones we not only have a shareholder dispute team, but also an insolvency & restructuring team. We can cover all bases.

What are the warning signs of impending insolvency?

Warning signs of impending insolvency include declining revenue, increasing debts, and difficulties in meeting financial obligations. Other indicators include a high turnover of key staff, delays in paying suppliers, and legal actions from creditors. Recognizing these signs early can help shareholders take action to address the financial issues and prevent insolvency.

What steps can you take to mitigate damage from insolvency?

To mitigate damage from insolvency, shareholders can work with management to develop a turnaround plan, restructure debts, and improve cash flow. Seeking legal advice to explore options such as company voluntary arrangements (CVAs) or administration can also help stabilize the business. These steps can protect shareholder value and, if possible, avoid formal insolvency proceedings.

10. Legal Costs and Funding Shareholder Claims

What should you understand about legal costs in shareholder disputes?

Understanding legal costs in shareholder disputes is essential for making informed decisions. Costs can vary depending on the complexity of the case, the need for expert witnesses, and the duration of the legal process. Being aware of these factors helps shareholders budget effectively and explore cost-effective strategies for resolving disputes.

How can we address your concerns about the cost of legal claims?

We understand that cost is a significant concern for shareholders considering legal action. Our approach includes offering various funding options such as company-funded derivative actions, fixed fee arrangements, and deferred fee arrangements like contingency or conditional fee agreements. These options can make legal action more accessible and manageable for shareholders.

What are the different funding options for shareholder claims?

Funding options for shareholder claims include:

  • Company-funded derivative actions: The company covers legal fees in cases where the action benefits the company.
  • Fixed fee arrangements: Predetermined legal fees provide cost certainty.
  • Deferred fee arrangements: Payment is contingent on the outcome of the case, reducing upfront costs.
  • Legal cost insurance: Insurance can cover legal fees and protect against the risk of paying the other side’s costs.

Exploring these options ensures that shareholders can pursue their claims without undue financial burden.

How can you choose the right funding option?

Choosing the right funding option depends on the specific circumstances of your case and financial situation. Consulting with a shareholder dispute lawyer can help you understand the available options and select the most suitable one. This ensures that you can pursue your claim effectively while managing costs.

Are there examples of cost-effective solutions for funding legal claims?

Examples of cost-effective solutions include successful derivative claims where the company funded the legal action, resulting in significant benefits for all shareholders. Other cases involve fixed fee arrangements that provided cost certainty and allowed shareholders to pursue their claims without financial strain. These examples highlight the importance of flexible and innovative funding solutions.

11. Conclusion

Why is proactive management of shareholder interests important?

Proactive management of shareholder interests is crucial for preventing disputes and ensuring the long-term success of the company. By staying informed, engaging in regular communication, and addressing potential issues early, shareholders can protect their investments and contribute to the company’s stability and growth.

My situation involved the disposal of a minority shareholding in a small business. On the face of it there didn’t seem much I could do but following my introduction to Francis Wilks & Jones and more particularly Maria Koureas-Jones and with the help of her colleagues they patiently worked away to counter the other sides arguments and eventually achieved a very satisfactory result for me. I can highly recommend all at Francis Wilks & Jones.

A shareholder for whom we successfully settled a shareholding disposal dispute

Shareholder Disputes FAQ’s

Every shareholder dispute is unique, this its own set of circumstances and pressure which need to be negotiated. At Francis Wilks & Jones, we have decades of experience dealing with complex shareholder disputes and we have an selection of answers to the most common questions we get from our clients. To get the right answers to your specific situation, contact us today.

Company Deadlock FAQ
Disputes with Management FAQ
Director Removal FAQ
Family Business Disputes FAQ
Minority Shareholder & Unfair Prejudice Claims FAQ
Non-payment of dividends & unfair payment policies FAQ
Business Exit & Share Sales FAQ
Company Insolvency Problems FAQ
Legal Costs and Funding Shareholder Claims FAQ

Key contacts

Stephen Downie

Stephen Downie


Maria Koureas-Jones

Maria Koureas-Jones


Andrew Carter

Andrew Carter


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Case studies

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