Disputes are commonplace in the boardroom and amongst shareholders. This could be from something as simple as a difference of opinion on the direction of a company, to a more complex issue like a perceived conflict of interest. Irrespective of their severity, all kinds of boardroom and shareholder disputes need to be carefully and correctly managed to avoid them spiralling out of control.
Foys’ company disputes resolution specialists offers solid legal advice to companies and individual clients currently dealing with boardroom or shareholder disputes. In this article, we’re going to talk through some of the steps you should take to manage a dispute, minimise its impact on the performance of your business, and protect your current and future interests.
Understanding the types of disputes
There can be a number of reasons behind why disputes happen and these can often intersect with one another to make matters more complex. Some can be very procedural, while others can be very personal. The types of disputes often found in the boardroom or among shareholders include:
- A breakdown of relations between directors/shareholders
- Perceived poor performance of a director/shareholder
- Differences of opinion over a company’s direction
- Directors perceived to be paying themselves too much remuneration
- Concern over whether or not the board is meeting its obligations and responsibilities (e.g. legal responsibilities)
- A conflict of interest (e.g. director involved in another business within the same industry)
- Lack of dividend payments
- Terms surrounding directors’ contracts
- The selling of shares back to the company or other shareholders
Some key considerations
Before we discuss legal rights and how to manage a dispute, it’s important to outline some considerations that may impact a dispute.
One of the first missteps often made is that legal advice isn’t sought at an early stage of the dispute. Matters often escalate without an understanding of the respective parties’ legal rights, which can make matters worse and lead to complications in the future. It’s advisable to seek out a solicitor who has no involvement with your company to ensure there is no conflict of interest in the dispute.
Another element of disputes that’s typically overlooked is the relationship that those involved in the dispute have with the company. For example, a director or shareholder may be classified as an employee of the company and as such, their employment rights may impact the dispute. Here, it is necessary to have a thorough understanding of the roles of directors and shareholders within the company.
Lastly, if you are currently setting up a company and researching the possibility of what happens in a dispute, it’s worth considering whether the personal values of you and your potential partners/shareholders align with those of your future company. If you can foresee potential conflict arising due to dissonance, it is worth re-considering the make-up of the board/shareholders or drafting documentation to take these matters into account.
This is why properly drafted Articles of Association or a shareholders’ agreement is crucial in setting out the rights and responsibilities of directors and shareholders as well as the terms and conditions of how a dispute should be handled. Such a document can help directors and shareholders agree at an early stage over what should happen in the event of a dispute – thus streamlining the process. Foys specialist solicitors often work with new companies to draft such documents necessary for navigating potential minefields brought about by disputes within the company boardrooms.
Legal rights in a dispute
When seeking legal advice from a lawyer, you may be asked questions such as:
- Are you in control of the board? If not, then who is in control of the board?
- Have you acted in a way that can be classed as improper for your role?
- Do you have control in shareholders’ meetings? If not, then who has control?
- Are there any agreements or restrictions in place regarding the selling of shares by shareholders?
The answers to these key questions frame the contextual tenets and salient facts, which outline your legal rights in a dispute. In addition, make sure to read through any company documents that could impact any of the above questions. For example, your Articles of Association may specify circumstances whereby normal rules do not apply and, therefore, a unanimous agreement from the board is required in matters of decision-making. A lawyer is necessary to assist you in understanding these documents and can provide sound advice on what you should or should not do within your dispute.
In instances where misconduct is an issue or you have been deemed to have acted improperly, it is necessary to understand the implications and whether you will be personally liable for paying out on any profits or losses resulting from your actions. Examples of this include using company funds for your own personal use without proper reimbursement, or diverting a contract away from the company to another business that you own, operate or hold a stake in.
Even if you control the board, it is still possible that a minority shareholder could bring a ‘derivative action’ lawsuit against you – a legal challenge under the Companies Act 2006.
Whenever you are looking to remove a shareholder, it is important that you receive legal advice before you act. This is good practice for removing anyone from the company and proper protocol should always be followed. If you don’t, you may be faced with a protracted legal battle that could cost you a lot of money in fees and compensation.
Likewise, for minor shareholders concerned over the size of payouts being made to directors, or who are unhappy with no dividends having been paid out for quite some time, consulting legal counsel is advised. In the former instance, establishing key points such as analysing the objective criteria – to assess whether board members would be expected to receive such remuneration for their duties – is a necessity before deciding on whether to take further action. In the case of dividends, establishing the company policy surrounding the declaration of dividends needs to be done. If you are a minority shareholder and can establish that other shareholders have received dividends, then your rights as a shareholder have been breached. When this is not clear, it is important to come to a decision regarding what type of action to take under legal counsel.
Under the Companies Act 2006, a shareholder does have the power to take a board member to court if they believe the board member has acted in a manner that is unfairly prejudicial to the interests of the rest of the board. These are personal legal actions and, as such, are paid for by the individual parties involved in the dispute – not by the company.
If all else fails in the dispute, shareholders have the right to apply to the court to wind up a company (force an insolvent company into liquidation) – often brought about in conjunction with a petition for unfair prejudice.
What to do in the event of a dispute
Here are some key steps to take in the event of a dispute in the boardroom that can help you manage and control the situation:
- Understand: Why has the dispute occurred? What are the parties trying to achieve? What can you practically do to resolve the issue in a manner that suits all parties?
- Negotiate: Can the problem be resolved without an expensive, time-consuming court battle? What will make the aggrieved party stay in the business? Is mediation a worthwhile consideration? Would the aggrieved party agree to sell their shares back to the company or to other shareholders?
- Offer: What is the company policy on buying out an aggrieved party’s shares? What would you offer to the aggrieved party to resolve the issue? Would the offer be considered reasonable in court?
By now, it should be clear why it is important that you take on legal advice as soon as possible in the event that a dispute arises.
Seek out legal advice from company dispute resolution specialists at Foys
If you want to protect your interests in a business, irrespective of whether you are directly involved in the dispute or not, you should seek out legal advice when it becomes clear that there is conflict in the boardroom.
At Foys, we represent companies, individual directors, and individual or groups of shareholders during such disputes. This can range from drafting proper documentation and policy surrounding disputes, to offering advice at the commencement of a dispute, to even acting for you in legal cases.
Our Company Disputes team offers a free initial consultation – allowing us to understand your case, work out how we can best help you, and specify any potential legal costs going forward.
To get in touch with matters relating to Company Disputes, simply fill out our Online Form or call your local Foys Solicitors office:
Other articles from Foys relating to company law include:
This post is not legal advice and should not replace professional advice tailored to your specific circumstances. It is intended to provide information of general interest about current legal issues.
Check Our Latest Posts
Often, lawyer will ettle ca e before they go to court, but not alway for the correct amount
With the help of our civil di pute advi or and expert , you can rely on u for ound legal
At Foy Solicitor , we believe in keeping up with new development in the Sheffield
Our team of experienced and upportive family mediator i here to help you re olve en itive
With the a i tance of our experienced medical negligence law olicitor , you can depend on u
The time after a diagno i of dementia can be difficult and confu ing with emotion running high
At Foy Solicitor , we firmly believe in giving back to our local community – we regularly take
Many of tho e who have been in an accident follow a traightforward procedure of wapping licen e
We’re more than ju t olicitor dealing with legal affair
At Foy Solicitor , we believe in
Suffering an injury i a di tre ing experience and can have a deva tating impact on your life
Our experienced elderly olicitor upport the elderly generation to organi e the legalitie
At Foy , we have year of experti e in property law and offer our advice on a range of property
Come and join u at our Chapeltown office for our coffee morning in aid of Macmillan There will be
At Foy , our dedicated team of expert Will and Probate olicitor can upport you in all the
At Foy , our family law olicitor under tand the importance of legal family matter and are
Under tanding company and commercial law i central to tarting and running a ucce ful
With the dedicated a i tance and guidance of our commercial di pute peciali t , you can rely on
With the a i tance of our employment law olicitor , advi or and expert , bu ine owner can
You can rely on our employment expert for employee for advice and upport in protecting your
With the a i tance of our experienced commercial property olicitor , advi or , conveyancer and
At Foy , we do our be t to give back to the community on a regular ba i
Thi week aw our team
Re earch conducted by Royal London in 2018, the large t mutual in urer in the UK, revealed that
Thank to improved road afety and mea ure addre ing reckle driving, the overall number of
When a tenant fall behind on their rental repayment they are aid to be in arrear Typically, a
Airbnb i a global, online marketplace which matche homeowner with gue t in regard to
Commercial property repre ent an exciting inve tment pro pect, and generating income from it i a
At Foy , we’re dedicated to giving back to our community, not only in our capacity a a
Di pute are commonplace in the boardroom and among t hareholder Thi could be from omething a
The corporate world ha no hortage of terminology that can be complex For tho e entering the
The deci ion to et up a new limited company, either from cratch or growing from a ole trader
Whether you’re tarting up a new company or on the cu p of taking your bu ine to the next
Getting to the point where you’re ready to tart a bu ine i a major fir t tep
Labour force urvey in 2018 howed that 595,000 worker in the UK uffer from work-related tre ,
Traditionally, only a mother who ha given birth ha the option to take paid time off work to look
On 2 March 2015, a new drug driving law came into force in England and Wale , making it illegal
Ju t like any other year, 2019 will ee growth but al o uncertainty, but we are prepared to
2019 i here and with the New Year come change In thi po t about change to employment law,
In many ituation when two or more people to buy a hou e together, they plit the price equally
Bonu payment are a welcome boo t for many employee , but ometime , employer take away
The end of the year i fa t approaching, and your employee are planning the ever-pre ent
Medical negligence i a tricky thing to prove Due to the cro over with medical malpractice, the
Writing a will i omething that many people do not think about until it i too late In mo t ca e ,
Today, Melanie Penney received a beautiful bunch of flower from a client a a way of aying thank
The legal y tem ha become noticeably more impenetrable in recent year Re earch by Re olution
Reference can make or break an employment opportunity A good reference can get you into
A recent legal ca e about Shared Parental Pay ha thrown ome doubt over whether Shared Parental
Di ciplinary hearing are often emotionally charged, and a a re ult, many of the rule and
Employment tribunal handle i ue uch a di crimination, wage di pute or unfair di mi al Many
After 27 year of ervice, Dale Harri ha retired a a Partner and left Foy Solicitor to pur ue
Million of people in the UK perform work in the o-called ‘gig’ economy - a term commonly u ed
It’ been a very long fight for Rebecca Steinfeld and Charle Keidan In 2014 they applied for a
Great new for Foy Solicitor
Foy Solicitor have ucce fully tendered for new Legal Aid
At Foy , we go above and beyond for our client We make ure that their ca e i dealt with care and
When your loved one wa fir t diagno ed with dementia, they may not have anticipated their
A will or te tament i a legal document de ignating how and to whom your property will be
Belfa t woman win landmark ca e
Siobhan McLoughlin, from Belfa t, had lived together with her
Foy Solicitor are delighted to announce that thi September, our Senior Partner Andrew Firth
The number of cohabiting couple in the UK ha been teadily ri ing in the la t two decade ,
For eparating couple , court can be a daunting pro pect, e pecially due to the co t and time
Whether you want to leave your aving to an animal charity when you pa on, give family
Re olving complex legal matter can take a long time, and when it involve your family it can
Foy Solicitor can announce that our a ociate olicitor Peter Jone , ba ed in our Work op office,
Living happily ever after i n’t a myth but it i a challenge, particularly in today’ complex
Tini Owen , 68, from Worce ter hire, had reque ted a divorce from her hu band Hugh after 40
Facing a criminal inve tigation for a motoring offence i cary and it can feel like the world i
Foy Solicitor are delighted to announce that partner Clare Morgan, ba ed at our Work op
Undoubtedly, civil di pute are unplea ant – the unre olved argument with a neighbour, the
Being injured, whether through medical negligence or an accident cau ed by omething that wa n’t
We’ve all been on the receiving end of one of tho e annoying phone call that tell u we’ve
So you’ve landed your dream job, but omething’ not quite right Maybe your bo i giving you
Nobody like thinking about their death or what will happen to their po e ion after they’ve
Dealing with divorce, attempting to olve childcare di agreement or financial i ue with an
Part of owning a bu ine i having a commercial property where you can trade from Whether
La t week wa Dementia Action Week With Alzheimer’ Society encouraging the public to get
With Harry and Meghan getting hitched la t Saturday, the country i till gripped by wedding
On Friday 18 May, Anuj Makol and Kim A hley – the joint Managing Partner of Foy –
Our office celebration ye terday were a true Royal ucce !
The initial propo al
At each of our even office throughout the country, we've been having ome fun to mark the
The upcoming wedding of Prince Harry and Meghan Markle i guaranteed to cau e
At Foy Solicitor , we aren’t the u ual tuffed hirt often a ociated with olicitor '
Three lawyer from our Will & Probate Team (Melanie Penny, Gina Brabham and Helen Swift)
Throughout April, Foy Solicitor i taking part in Will Month in upport of St Luke’ Ho pice in
Staff at Foy donated lot of gift for "Mi ion Chri tma - ca h for kid ", a charity that
After 30 year of excellent ervice, we can announce that David Verity ha now retired from
On Friday 29th September, variou Foy office took part in a Macmillan coffee morning, to rai e
We are plea ed to announce that Foy Solicitor have acquired the legal practice of Dean Thoma
Staff from all 5 office of Foy Solicitor have been taking part in a Chri tma Jumper/ Dre down
Wedne day 29 June 2016
8:30am – Regi tration and complimentary breakfa t buttie
A recent Court deci ion from the UK` highe t Court, may lead to a number of people appealing their
Important information for any landlord with the upcoming change to tamp duty
From the tart of
Today taff from all 5 office at Foy have been taking part in a Chri tma jumper/ dre down day,
Two women who ay their ex-hu band mi led the court on how much money they were worth have won the
The law i there to protect your right when you buy good or ervice , but what happen when
Member of taff at the Donca ter office of Foy Solicitor have today been taking part in Hallam
3 member of taff at Foy Solicitor will be running the Great York hire 10k run on 27th September
U ing ocial media uch a Facebook can be a great way to communicate, but there are an increa ing
Thi i a ummary of a landmark Judgement that i mentioned below
In a erie of recent
Legal Aid i under threat Legal Aid Lawyer often work long and often un ociable hour , for le
If you feel you have been unfairly left out of a Will, or if you want to make or adju t your Will
In the build up to the 2015 General Election, each Party ha outlined their intention on a number
On Saturday 18th April over 360 people attended the Finningley Ball, the fir t event of it
An intere ting article, highlighting the impact that cut to the legal y tem are having on the
An intere ting in the Guardian online today, that confirm how important a fair Legal Sy tem and
The following change will take effect from 5 April 2015 (although in ome ca e the e are ubject
Comment by Clare Morgan, Partner in the Family Team at Foy Solicitor :-
"The BBC Panorama
The national minimum wage (NMW) will increa e by 3% to a new rate of £670 per hour, effective from
The mini try of Ju tice (MOJ) ha announced new charge for convicted defendant in the criminal
Well done to Lorraine Hooper, a member of taff at Foy Donca ter, who recently helped rai e money
Staff at Foy Solicitor , Waterdale Donca ter took part in the Red no e day event Baking wa done,
The va t majority of people treated in the NHS receive care from dedicated taff truggling again t
Dale Harri read a tatement out ide Cardiff Crown Court along ide Joanne Mjadzelic (the