Shareholder disputes are not uncommon and can sometimes turn extremely acrimonious, akin to a nasty divorce. Disputes may arise for various reasons such as;
- Disagreement on strategic direction
- Failure to take minority shareholder rights into account
- Misappropriation of funds and assets
- Failure to keep shareholders apprised on company finances
- Conflict of interest allegations.
The best defense against a shareholder dispute is to have a robust and well-drafted shareholder agreement in place from inception. A shareholder agreement is a private, binding contract that governs the relationship of shareholders with both the company and the other shareholders in it. This may include, but is not limited to:
- Identities of shareholders, managers and directors
- Funding and structure of company
- Appointment of directors and managers by the shareholders
- Obtaining and selling of shares by shareholders
- Exit strategies for shareholders
A well-draft shareholder agreement clearly defines the rights and obligations of the shareholders among themselves and towards the company and provides the legal means by which disputes can be resolved when they arise.
No matter how good your relationship may be with fellow shareholders and company management, it is important to have guidelines in place to ensure smooth operation of company business.
Disclaimer- This article is intended as a general comment on legal issues and developments. The material is for informational purposes only and should not be taken as legal advice. Seek specialist advice on specific circumstances.