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Company and Shareholder Disputes

Directors and shareholders of a company have different rights and responsibilities related to their respective roles.

Company and Shareholder Disputes

Directors are responsible for the management of a company and undertake the decision making; that could be as a sole director or by a number of directors acting together.  The law imposes on directors’ various duties, being in summary:

  • To act within their powers
  • To promote the success of the company
  • To exercise their independent judgment
  • To exercise reasonable care, skill and diligence
  • To avoid conflicts of interest
  • Not to accept benefits from third parties
  • To declare any interest in a proposed transaction or arrangement with the company

Disagreements can and do arise between directors, often where it is alleged that one director is in breach of their duties owed to the company.

Disagreements can and do arise between directors, often where it is alleged that one director is in breach of their duties owed to the company.  This can lead to a situation where, to protect the interest of the company, the other directors are required to take action, such as seeking the removal of the offending director, or possibly wanting to seek financial recourse (on behalf of the company) for any losses that have arisen as a result of the director’s alleged misconduct.

Shareholders are the owners of the company but, unlike directors, are not typically involved in the day-to-day running of it. By virtue of their shareholding, in certain circumstances shareholders can take action against directors who are considered to be in breach of their duties, although such claims (known as ‘derivative’ actions) can only be brought in the name of the company and proceedings can only seek to recover the losses suffered by the company, not the individual losses of the shareholders (although there may be a link between the two).

Where it is alleged that the affairs of the company are being conducted in a manner that is unfairly prejudicial to the interests of shareholders, members of a company also have a right to bring a petition to court (under s.994 of the Companies Act 2006) to seek redress.  The court has a wide discretion to order how the alleged prejudicial conduct should be remedied, although the typical relief sought is an order for the shares of the petitioning members to be bought at a fair price.

Company/Shareholder Disputes FAQ’s

Where can I get more advice on company/shareholder disputes?

Richardson Lissack’s specialist team can provide you with the expert help and guidance you need on all issues relating to company/shareholder disputes.

How do company/shareholder disputes arise?

Disputes can arise between a company and its directors; for example, where a director has breached their fiduciary duties. In those circumstances, legal guidance may be necessary to consider what steps can be taken by the company to remove the director. Issues can also arise between a company and its shareholders. In such circumstances shareholders may need advice on how to make the company change its behaviour or provide financial recompense.

The importance of expert legal advice

The area concerning company/shareholder disputes is highly complex. While this article provides an overview of the key issues, it is highly recommended that individuals or companies obtain professional advice to help resolve any issues they are experiencing. Richardson Lissack has a team of specialists with a wealth of experience who will be able to provide expert assistance.

Can a director be removed?

This is an extremely technical area of law – particularly if the director is also an employee of the company and a shareholder in it.

While a director guilty of poor performance or dishonesty may have their employment terminated through standard procedures, they would remain a director unless there was a board resolution to remove them.

This might prove problematic if shareholders are split on the issue (an even greater possibility if the director in question holds substantial shares) and lead to High Court proceedings. These could prove extremely expensive for both parties as well as causing them significant reputational damage.

It is recommended, therefore, that legal advice is obtained on this issue as soon as possible.

What rights do shareholders have?

The exact rights of shareholders will depend on factors such as:

  • The class of share that they hold.
  • A company’s articles of association. These state the rights and responsibilities of shareholders and constitute a statutory agreement between shareholders, and between shareholders and the company.

What legal options may be available to shareholders?

  • One of the main areas of conflict can be over unfair prejudice. If a shareholder feels that the company is being run in a manner that unfairly affects them (either generally or in a specific instance) they can take action to bring about change. Whether something is ‘unfair’ is judged on a case-by-case basis – underlining the need to seek legal advice.
  • Sale of shares: If minority shareholders feel that the company is being run in a way prejudicial to their interests, they can apply to the court to have their shares purchased at a fair price.
  • Winding-up petition: Shareholders have the right to ask for the company to be wound-up if they believe it is being mismanaged. It is strongly advised that shareholders pursue other avenues before turning to this option.
Prevention is better than a cure

How Richardson Lissack can help

The law relating to company and shareholders disputes can be complicated. Richardson Lissack provides civil litigation services to our clients in relation to a variety of company and shareholders disputes.

Contact us today to discuss your case in confidence.

Our lawyers are available to assist you and provide legal advice.

Contact London 020 3753 5352 or Manchester 0161 834 7284. Alternatively you can email info@richardsonlissack.co.uk

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