Our team at Francis Wilks & Jones has spent 20 years advising shareholders and business owners about managing risk in their businesses - and avoiding problems further down the line. Fixing potential problems early can have huge benefits further down the line. Speak to our friendly team today for further help.
Even if you are not in a shareholder dispute, it is always sensible to consider ways in which you might reduce the risks associated with your investment and be ready to react quickly if a shareholder dispute does arise. This is particularly true in smaller businesses where shareholders may also be involved with or related to people in positions of management or power. Properly planning your shareholder protection at an early stage can make a significant difference later on.
“I have found FWJ to be perceptive, to the point and realistic. They have been able to assimilate and forcefully defend a very aggressive claim with very limited historic information.”A client we advised on a complicated property and partnership dispute
Let’s face it, business is risky, so it’s important to ensure that you’re prepared for any eventuality. Our specialist shareholder protection team regularly advises shareholders on how best to protect their interests including the following:
Having a properly drafted shareholder agreement in place is the best way by far for a shareholder to protect his/her position. In the absence of a shareholders agreement, a director will run a company in accordance with the company constitution (Articles of Association) which are often “standard” articles that have not been amended to address the intentions or requirements of a company’s owners.
Our team can produce a bespoke shareholder agreement suitable for your business to ensure that shareholder rights are properly protected. These will address some of the key issues that give rise to disputes. For example,
- how the business shall be run;
- payment of dividends;
- what happens where a director or shareholder wishes to exit;
- what restrictions director / shareholders are subject to when they leave;
- pre-emption rights;
- how shares should be valued; and
- how to address incompetent directors.
Having these issues addressed in a shareholder agreement will materially reduce the time and cost associated with a subsequent shareholder dispute.
It is important that shareholders understand the different share classifications and what rights attach to each. This is particularly true if you are purchasing shares, being offered shares in a company for the first time or being offered a different class of shares.
Understanding at the outset what rights attach to shares and how you fit into the general shareholding of that company can be very important in order to protect your investment and assess what steps are available to you should disputes arise.
Understanding the relationship between management, directors and shareholders
This issue can be critical for shareholders to fully understand – particularly in smaller run or family run businesses where the role between shareholders and management is often blurred.
- understanding the rights and powers of directors, issues of corporate governance and the ability of shareholders to take action, in the event of a dispute, can be critical to avoid long term problems in a business caused by a dispute;
- this is especially true where shareholders disagree with the management or strategic direction of a company or want to remove an underperforming or incompetent director.
Shareholders do not normally give sufficient consideration to these issues at the outset and only discover later on that a few simple steps taken early on could have made an enormous difference to protecting their position, the value of their shareholding and the costs associated with resolving a dispute.
All companies are different. Our 20 years’ experience working with shareholders and business in general means that we have advised a wide spectrum of businesses and shareholder interests. We can use that experience to help you to understand the rights available to directors and shareholders and the steps that can be taken by a company to reduce the risk of a shareholder dispute causing long term problems to it.
Insolvency related matters
Insolvency often spells disaster for a shareholder because the value of their shares can quickly become worthless.
In smaller businesses in particular, it is often clear from an early stage that a business might be struggling financially. If directors are failing to take the appropriate action to fix a problem, then a shareholder might want to take action to protect his/her rights and reduce the risk of insolvency becoming necessary.
Being able to do this in a constructive manner, taking the appropriate company rescue advice quickly and ensuring that the directors are carrying out their obligations diligently, is crucial to protect a shareholder’s position and something we can help advise you on.
Where a shareholder is asked to approve a resolution for a company to enter an insolvency process, advice should be taken to ensure that the process is the most appropriate process available for the company.
Minority shareholder protection
Minority shareholders are often the most at risk of having their position abused either by fellow majority shareholders and/or directors/the management of a business. Shareholders who own 50% of a company or less, are deemed to be minority shareholders.
- there are things that minority shareholders can do to reduce these risks from an early stage – for example, by ensuring proper protection within a well drafted shareholder agreement which takes steps to protect their rights;
- where there is no shareholder agreement, there are still things which can be done to help protect the interest of minority shareholders.
Common issues relate to dilution of shares, the enforcement of pre-emption rights, excessive pay to directors, failure to pay dividends, directors running the business in a way that is prejudicial to the interests of minority shareholders and the disposal of company assets. We regularly advise minority shareholders on how best to protect their position and reduce their risk so that they do not have to rely on formal legal remedies to resolve the problems later on.
Share valuation and exit
Having a mechanism in place to value your shares properly and ensure that they are not reduced in value upon sale can be crucial if you want to exit a company.
Understanding these processes, taking professional advice from lawyers and/or accountants and having this lined up in advance can often be the difference between ensuring you receive full value for your shares or having to sell them at an unfair discount.
We have advised on many share sale and business exit situations. Our experts can help you to maximise your share value and make sure you get paid a fair sum for your shares.
Sleeping partners are those shareholders who take little if any active involvement either in the company or in their capacity as shareholder.
However, from time to time a sleeping partner can suddenly become interested in activities of the business and begin to cause issues. Alternatively, you may require assistance from a sleeping partner should a dispute arise with the directors and/or management of the company. Understanding the roles and responsibilities of a sleeping partner and how best to manage them can be critical in reducing your risk as a shareholder, particularly if you are a minority shareholder.
Proper record taking & corporate governance
Whilst strictly the role of the directors and management, due to the blurred lines in smaller businesses, it is always very helpful for shareholders to understand what company records should be kept, why these are so important and what a shareholder is entitled to see. Failure to run a company in a proper way can soon lead to problems – the threat of insolvency, director disqualification or enquiries by HMRC or claims by liquidators. This can quickly reduce the value of shares held.
Other professional assistance
It isn’t always just lawyers who are needed to resolve a shareholder dispute. Often shareholders will require the assistance of other professionals – from accountants to tax experts. At Francis Wilks & Jones, you get the benefit of a team approach – using our trusted partners in other professional service industries to make sure you have the complete team you need to deal with the situation at hand.
Shareholder protection team, we’re here to help
Should you require any assistance, please contact our shareholder team who can discuss such matters with you.