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<p>In our <a href="https://linnearcms.wpenginepowered.com/resources/prevent-shareholder-disputes-disrupting-business/">previous article on shareholder disputes</a>, we discussed how taking pre-emptive action and having a robust shareholder agreement or tailored articles of association can help safeguard a business against shareholder disputes.</p>
<p>However, while early intervention can prevent many shareholder disputes, some conflicts will inevitably escalate. When informal resolution fails, and the pre-agreed procedures set out in the shareholders agreement or articles have been exhausted, businesses may turn to more structured and, in some cases, legal remedies to protect operations and finances, as well as shareholder interests.</p>
<h2>Dispute resolution options for shareholders</h2>
<h3>Negotiation and mediation</h3>
<p>Before a dispute can escalate and end up in court – potentially leading to costly and time-consuming legal intervention – shareholders should first try to resolve any dispute with honest and open communication of any concerns and problems. It’s often the easiest and most effective course of action to resolve disputes through informal negotiations, where parties come together to discuss their concerns.</p>
<p>When this route does not succeed, mediation or another form of alternative dispute resolution (ADR) can be a good alternative. With mediation, a neutral third party (the mediator), usually but not always a lawyer, facilitates discussions and helps guide shareholders towards a mutually acceptable solution. Mediation is less formal than court proceedings, more cost-effective and often preserves working relationships.</p>
<p>Mediation is private, so discussions held during the mediation process will not be relied on later in court.</p>
<h3>Buy-outs and exit agreements</h3>
<p>An offer to buy out an aggrieved shareholder’s shares may sometimes be the most practical solution for resolving a dispute. Pre-defined buy-sell arrangements – often included in a well-drafted shareholders’ agreement – can be particularly effective in resolving 50:50 disputes, as they outline when and how one party can buy out the other, including clear valuation methods.</p>
<p>Given the financial stakes, it’s advisable to consult a solicitor or an independent financial adviser, or both, with knowledge of the business and its sector. This helps ensure the valuation is fair and acceptable to all sides. A well-structured departure strategy not only enables a smoother transition when a shareholder wants to leave or is required to sell but also helps avoid prolonged disputes and protects the stability of the business.</p>
<h3>Litigation</h3>
<p>If negotiation and mediation fail, litigation may be necessary.</p>
<p>Generally, it is advisable to view litigation as a last resort. It involves formal court proceedings and can be time-consuming, expensive and emotionally draining. That said, it may be the only viable option when all other avenues have been exhausted in serious cases such as breaches of fiduciary duty or fraud. At this stage, it is highly advisable to involve solicitors specialising in shareholder disputes who can guide you through the legal process and ensure that your interests are protected.</p>
<h2>Legal remedies</h2>
<p>If it’s not possible to reach a solution by any of the above methods, the shareholders can take the matter to court for a judge to resolve. However, generally this should viewed as a last resort because it can be expensive, time-consuming (as there is often a long wait for a court date) and, in certain cases, can negatively impact the company’s reputation and public image.</p>
<h3>Unfair prejudice proceeding</h3>
<p>An unfair prejudice petition under section 994 of the Companies Act is often the most effective way for disadvantaged minority shareholders to look to resolve their disputes.</p>
<p>If a business is being conducted unfairly and prejudicially to the interests of a minority shareholder, the shareholder can bring a claim to correct that conduct. The court will not be concerned about minor or ambiguous complaints, such as a general accusation that the directors are managing the business poorly – specific unfair conduct must negatively impact a shareholder’s position or the value of their shareholding.</p>
<p>Examples of unfair prejudice may be where the majority shareholder withholds information, such as company accounts, from minority shareholders or where a majority shareholder diverts business to another company in which they hold an interest. The court has the discretion to make a range of orders that might include insisting that the company changes its procedures, ordering one party to sell shares to another person or group, or – in extreme cases – the winding up of the business.</p>
<h2>Steps to prevent shareholder disputes in the future</h2>
<p>The best approach to shareholder disputes is prevention. Here are practical steps to protect your business:</p>
<ul>
<li>Establish clear governance structures: define roles, responsibilities and decision-making procedures</li>
<li>Hold regular shareholder meetings: encourage open communication and regular updates on business performance</li>
<li>Clarify expectations: ensure all shareholders understand their obligations and contributions to the business</li>
<li>Seek legal advice: engage a solicitor to draft or review shareholder agreements, especially when bringing new shareholders on board</li>
</ul>
<p>These measures can all help build a culture of transparency and trust, significantly reducing the likelihood of conflict.</p>
<h2>Take proactive steps to protect your business</h2>
<p>Shareholder disputes are an inevitable part of doing business, especially in small or privately owned companies or partnerships. However, with the right agreements and processes in place, you can resolve conflicts efficiently and minimise disruption.</p>
<p>Drafting and reviewing a shareholder agreement should be a top priority for any business involving multiple owners. These agreements provide a safety net and ensure that everyone is on the same page when disputes arise. In situations where a dispute becomes complex, do not hesitate to consult lawyers who can provide expert legal advice and representation.</p>
<p>Taking proactive steps today can protect your business tomorrow. <a href="https://linnearcms.wpenginepowered.com/get-in-touch/">Speak to a solicitor at Linnear Legal now</a> to help ensure that shareholder disputes do not derail your success.</p>


Legal remedies for resolving shareholder disputes 

Resolve shareholder disputes with mediation, buy-outs or legal action, and learn how to prevent them with clear agreements and expert advice.

Legal remedies for resolving shareholder disputes  | Linnear Legal

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