Director & Shareholder Disputes

Understanding the fundamental differences between a director and a shareholder is pivotal when navigating the world of UK business structures. There are significant differences which are important to understand:

1. Role and Responsibilities:

• Director: A director is primarily responsible for managing the day-to-day operations of a company. In the UK, directors are bound by statutory duties outlined in the Companies Act 2006. These duties include acting in the company’s best interests, avoiding conflicts of interest, and ensuring the company’s financial accounts are accurate and transparent. Simply put, directors make decisions and oversee operations to ensure the company’s success.
• Shareholder: Shareholders, on the other hand, are individuals or entities that own a portion of the company through shares. Their primary concern is usually the company’s profitability and growth since this directly impacts the value of their shares and potential dividends. While they do not dive into day-to-day operations, shareholders in the UK have specific rights. These can include voting on significant company decisions and appointing or removing directors.

2. Economic Interest:

• Director: Being a director does not automatically entail ownership in the company. However, it is common in many UK businesses, especially smaller ones, for directors to also be shareholders. Their economic interest as a director typically comes in the form of a salary or director’s fee.
• Shareholder: A shareholder’s economic interest is tied to the company’s financial performance. When the company does well and declares dividends, shareholders receive a portion of those profits relative to the number of shares they hold.

3. Liability and Risks:

• Director: Directors in the UK face potential personal liability, especially if they breach their statutory duties or if the company trades while insolvent. This responsibility emphasises the significance of their role in maintaining a company’s integrity and financial health.
• Shareholder: Generally, shareholders have limited liability, which means their financial risk is primarily confined to the value of their shares. They usually are not held accountable for the company’s debts unless specific circumstances suggest otherwise.

While directors and shareholders both play vital roles in a UK company’s ecosystem, their functions, interests, and risks differ.

If you find yourself navigating the complexities of director and shareholder relationships, whether you are stepping into a new role or facing a dispute, our expert team at Go Legal is here to guide and support you every step of the way. Please call us on 0207 459 4037 or complete our booking form below for a Free Consultation with one of our expert lawyers today.

A deadlock between directors or shareholders in a 50/50 owned company in the UK is a complex and potentially detrimental situation that can have significant legal and practical implications that will affect the business, employees, and customers.

1. Impeded Decision Making:

In a 50/50 ownership structure, the inability of directors or shareholders to agree on major decisions can lead to a standstill. This can negatively impact critical aspects of the business, such as expansion plans, financial arrangements, and day-to-day operations.

2. Governance Challenges:

A deadlock can disrupt the governance of the company, potentially leading to breaches of directors’ duties if one party acts unilaterally. This might expose the directors to personal liability.

3. Contractual Obligations:

The failure to make decisions may lead to breaches of contractual obligations with third parties, resulting in potential litigation and financial liability for the company.

4. Reputation Damage:

Ongoing disputes can lead to reputational damage, both with clients and within the industry, which may affect the company’s overall value and attractiveness to potential investors.

5. Employee Impact:

A leadership deadlock could create uncertainty among employees, affecting morale and potentially leading to attrition.

6. Potential Legal Remedies:

• Mediation and Arbitration: If there is a shareholders’ agreement in place, it may include dispute resolution clauses that mandate mediation or arbitration. This can be a cost-effective way to reach a resolution.
• Court Intervention: If alternative dispute resolution fails, the parties may resort to court. A court might order the sale of one party’s shares to the other or even wind up the company if it is deemed that the company can no longer function.
• Unfair Prejudice Petition: If one party feels that the company’s affairs are being conducted in a manner that is unfairly prejudicial to their interests, they may bring an unfair prejudice petition. This could result in the court ordering a buy-out of one party’s shares.
• Derivative Claim: A derivative claim can be brought against a director if there’s evidence of negligence, default, breach of duty, or breach of trust.

7. Prevention Measures:

Implementing a well-drafted shareholders’ agreement at the outset can provide mechanisms for resolving deadlocks, such as a casting vote, alternative dispute resolution processes, or even ‘shoot-out’ clauses where one party offers a price for the other’s shares.

8. Engage Professional Assistance:

Given the potential issues that a deadlock situation can cause the business it is important to take legal advice from our expert lawyers who have decades of experience in director and shareholder disputes and successfully resolving the same.

Please call us on 0207 459 4037 or complete our booking form below for a Free Consultation with one of our expert disputes lawyers today.

Director disputes and internal disagreements can arise in many businesses and it is important to address them promptly and professionally to safeguard the company’s integrity and ongoing operations.

1. Internal Company Procedures: Every well-structured company should have internal procedures, often set out in its Articles of Association or a Shareholders’ Agreement. These documents often provide the first steps in addressing and resolving director disputes.
2. Mediation: If internal procedures do not offer a resolution, or if the situation escalates, mediation can be a suitable next step. Mediation involves an impartial third party who assists the disputing directors in reaching a voluntary agreement. It is a non-confrontational approach that focuses on mutual understanding and crafting solutions that benefit all parties. Many of our experienced lawyers are also mediators and can provide invaluable assistance and negotiation tactics to assist with this process to ensure that your objectives can be achieved.
3. Court Proceedings: When all else fails or if the nature of the dispute demands it, taking the matter to court may be the final step. The UK courts can make various orders in director disputes, including orders to prevent certain actions, to rectify wrongs, or even to wind up the company in extreme cases.
4. Settlement Agreements: Often, before, or even during court proceedings, parties may decide to settle. This involves drafting a legally binding settlement agreement detailing the terms both parties have consented to. Settlements can save time, costs, and often salvage business relationships.

It is vital that you seek legal advice early. Our experienced director and shareholder dispute lawyers can guide you to dispute resolution within your company ensuring decisions align with the company’s best interests and legal standards.

If you find yourself amidst a director dispute or want to ensure you are equipped to handle potential future disagreements, our dedicated team at Go Legal stands ready to guide you through every step.

In the UK’s corporate landscape, minority shareholders, although holding a smaller stake in the company, have specific rights designed to protect their interests. It is crucial to understand these rights, especially if you feel overshadowed or marginalised in decision-making processes.

1. Statutory Rights: Every shareholder including minority shareholders, irrespective of their share percentage, has basic statutory rights. These include the right to attend general meetings, the right to vote on certain matters, and the right to receive dividends when declared.
2. Protection against Unfair Prejudice: Under the Companies Act 2006, minority shareholders can bring an action if the company’s affairs are being conducted in a manner unfairly prejudicial to their interests. Examples include not being consulted on major decisions or being denied information about the company’s operations.
3. Right to Information: All shareholders have the right to access certain company documents, including the company’s register of members, annual accounts, and related records. This ensures transparency and keeps shareholders informed.
4. Right to Challenge Derivative Actions: If a director’s actions (or inaction) harm the company, minority shareholders can, under specific circumstances, bring a claim in the company’s name. This is known as a derivative claim and serves to protect the company and its shareholders from directors’ wrongful acts.
5. Tag-along Rights: Often found in Shareholders’ Agreements, these rights ensure that if a majority shareholder sells their stake, minority shareholders have the right to join the transaction and sell their minority stake at the same terms and conditions.
6. Winding-up on Just and Equitable Grounds: As a last resort, if it is believed that the company’s affairs are being managed in a way that is oppressive or unfairly prejudicial to some shareholders, a minority shareholder can petition the court to have the company wound up.

If you feel your rights as a minority shareholder are being overshadowed, it is essential to act proactively. Our experienced team at Go Legal understands the nuances of director and shareholder disputes and is dedicated to ensuring your rights and interests are firmly upheld. Navigate the complexities of shareholder rights with confidence, backed by our expert guidance. Please call us on 0207 459 4037 for a Free Consultation today.

In the UK, ensuring the fair treatment of all shareholders, regardless of their stake in the company, is of paramount importance. If you are a shareholder who believes that the company’s directors are acting contrary to your interests, rest assured, the UK legal system offers several robust remedies to protect and vindicate your rights:

1. Unfair Prejudice Petition: This is one of the most used remedies, the Companies Act 2006 allows shareholders to present an unfair prejudice petition to the court. This is applicable if it is believed that the company’s affairs are being conducted detrimentally to the interests of shareholders as a group or some part of its members, including minority shareholders.
2. Derivative Claims: If a director’s actions harm the company and, consequently, the shareholders, you can bring forth a derivative claim. Here, shareholders can sue a director on the company’s behalf for breach of duty.
3. Access to Company Information: Shareholders have the statutory right to access certain documents, ensuring transparency. If denied, legal action can be taken to obtain necessary company information.
4. Injunctions: In situations where immediate action is required to prevent damage or where there is a threat of a director continuing with an alleged wrongful act, shareholders can seek an injunction. This court order can prevent directors from taking certain actions.
5. Winding-up Petition: As a drastic measure, if you believe the directors are running the company in a way that is unjust or harmful to the shareholders, you can petition for the company to be wound up.
6. Compulsory Buyout: In some cases, especially following an unfair prejudice petition, the court may order the majority shareholders or the company itself to buy out the aggrieved shareholder’s shares at a fair value.

It is essential to recognise that each case is unique. While the legal pathways are designed to protect shareholder interests, navigating these avenues requires a deep understanding of UK corporate law.

Our dedicated team at Go Legal is committed to guiding shareholders like you, ensuring that your voice is heard and your interests safeguarded. If you suspect directors are compromising your shareholder rights, reach out to us, and let our expertise be your guiding light.

Please call us on 0207 459 4037 or complete our booking form below for a Free Consultation with one of our expert director and shareholder dispute lawyers today.

In corporate governance, the Companies Act 2006 is an important legislation, designed to balance the power dynamics within a company. There are several crucial aspects of the Companies Act which we will consider further:

1. Statutory Derivative Claims: The Act empowers shareholders to bring claims against directors on the company’s behalf when they breach their duties, ensuring that directors are accountable for their actions or inactions.
2. Protection against Unfair Prejudice: Under Section 994, shareholders can apply to the court if they believe the company’s affairs are being, or have been, conducted in a manner that is unfairly prejudicial to their interests. This is a critical safeguard, especially for minority shareholders.
3. Right to Information: Shareholders, as vital stakeholders, have a statutory right to access certain company documents. This includes annual reports, financial statements, and the company’s register of members, promoting transparency and open governance.
4. Voting Rights: The Act specifies that every shareholder has the right to vote on key decisions, ensuring their voice is part of the company’s major resolutions. This could include decisions like altering the company’s articles or approving significant transactions.
5. Right to Dividends: When a company declares dividends, every shareholder is entitled to their proportionate share, based on the Act’s stipulations.
6. Right to Challenge Company Resolutions: Should shareholders feel that a resolution was not passed correctly or was unfairly imposed, the Act provides avenues to challenge and potentially nullify such resolutions.
7. Pre-emption Rights: To protect existing shareholders from dilution of their shares, the Act, in certain circumstances, grants them a priority right to buy new shares before they are offered to outsiders.

Interpreting and leveraging shareholder rights requires adept legal understanding. At Go Legal, we pride ourselves on our expertise in navigating the complexities of the Companies Act.

If you are a shareholder seeking clarity or believe your rights are being infringed upon, our experienced dispute resolution litigation team can assist in your shareholder litigation. Please call us on 0207 459 4037 or complete our booking form below for a Free Consultation with one of our expert director and shareholder dispute lawyers today.

Corporate relationships can sometimes be difficult to manage leading to disagreements which could significantly affect the day-to-day progress and workings within a business. At Go Legal, we are here to guide you through your director and shareholder dispute so that you get a resolution in a cost-effective way that will limit any disruption to the business.

What is an Unfair Prejudice Petition: Enshrined within the Companies Act 2006, the Unfair Prejudice Petition is a powerful legal remedy, specifically under Section 994 of the Act. It allows shareholders to approach the court if they believe the affairs of the company are being conducted in a manner that is unfairly prejudicial to some or all the members.

Scenarios that can give rise to such petitions include:

• Exclusion from company management despite promises or understandings.
• Breaches of the company’s articles of association or shareholders’ agreement.
• Misappropriation of company assets or funds.
• Directors awarding themselves excessive remuneration.
• Diverting business to other businesses or ventures.
• Failure to pay dividends when the company has adequate profits.

Leveraging the Petition in Shareholder Disputes: If successful, the court has a broad discretion to grant relief. This could involve:

• Ordering the company to refrain from an impending action.
• Mandating a buyout of shares at a fair value.
• Modifying the company’s articles of association.
• Winding up the company in extreme circumstances.

It is important to note that with an Unfair Prejudice Petition the courts will tailor the remedy to the specifics of the case at hand for the business. However, there are limits on what the Court may order and therefore it is always good to explore commercial negotiations and resolutions.

At Go Legal, we are passionate about representing your business and commercial interests. If you believe you have suffered unfair prejudice within your business or wish to understand more about your rights, our experienced director and shareholder disputes team is always at your service, ready to guide, advise, and advocate on your behalf.

If you have a corporate dispute within your company, please do not hesitate to contact us on 0207 459 4037 for a Free Consultation today.

Removing a director or shareholder from a UK company involves specific legal processes and is subject to the company’s Articles of Association, any shareholders’ agreement in place, and the provisions of the Companies Act 2006.

1.Removing a Director:

Ordinary Resolution by Shareholders –

• Under the Companies Act 2006, Section 168, shareholders can pass an ordinary resolution (a simple majority of over 50%) to remove a director before the expiry of their period of office.
• The director must be notified of the intended resolution and has the right to be heard at the meeting where the resolution will be considered.

Articles of Association:

• Some companies have specific provisions in their Articles of Association that can determine or affect the process of removing a director, such as requiring a higher voting threshold.

Director’s Service Agreement:

• This might provide grounds or procedures for dismissal. Termination under a service agreement may not automatically mean removal as a director, but it can often precede such a move.

2. Removing a Shareholder:

Removing a shareholder is generally more complex since owning shares gives property rights. The removal often involves buying out the shareholder.

Shareholders’ Agreement:

• It might contain provisions regarding the transfer or forced sale of shares, often detailing circumstances under which a shareholder may be required to sell their shares back to the company or to other shareholders.

Pre-emption Rights:

• As per many standard Articles of Association, if a shareholder wishes to sell their shares, they must first offer them to existing shareholders. This can allow other shareholders to prevent an unwanted third party from becoming a shareholder.

Company Buy-back:

• The company itself may have the right or be given the right to buy back shares from a shareholder, subject to satisfying certain conditions.

Court Order:

• In extreme circumstances, such as proven misconduct leading to unfair prejudice against other shareholders, the court can order a shareholder to sell their shares.

In all cases, it is crucial to take legal advice from our expert lawyers. Removing a director or shareholder without adhering to the correct procedure or without valid grounds can lead to legal disputes or claims for compensation. If you are considering such an action engage with our specialist lawyers to ensure you navigate these complexities effectively and in compliance with UK laws, achieve the best outcome for you and your business.

Please call us on 0207 459 4037 or complete our booking form below for a Free Consultation with one of our expert director and shareholder dispute lawyers today.

Shareholders’ Agreements are invaluable tools in the corporate landscape, acting as a framework for the operation of a company and establishing clear guidelines for the relationship between shareholders. When it comes to preventing or resolving disputes between directors and shareholders, a well-drafted Shareholders’ Agreement plays a pivotal role in several ways:

1. Clarity on Roles and Responsibilities: A Shareholders’ Agreement can clearly outline the roles, responsibilities, and powers of directors, providing a transparent understanding of what is expected from them. By setting these boundaries, potential areas of contention can be minimized.
2. Decision-making Process: The agreement can specify procedures for making significant decisions, such as taking on new debt, hiring key executives, or expanding the business. By detailing voting rights and the necessary thresholds for various decisions, it can prevent disagreements about the direction of the company.
3. Mechanism for Dispute Resolution: Proactive inclusion of a dispute resolution clause can guide parties if disagreements arise. This might encompass methods like mediation or arbitration, offering an alternative to costly and time-consuming litigation.
4. Protection of Minority Shareholders: Often, disputes arise from minority shareholders feeling sidelined. The agreement can include clauses that protect the rights of these minority shareholders, ensuring they have a say in specific critical decisions, thereby reducing feelings of marginalization.
5. Exit Strategies: In cases where disputes cannot be resolved, it is beneficial to have predefined exit strategies. The agreement can detail the process for a buyout, share valuations, or the sale of shares back to the company, offering a clear path forward without undue conflict.
6. Non-compete and Confidentiality Clauses: By defining what directors or shareholders can and cannot do regarding competition or disclosure of confidential information, potential conflicts of interest or breaches of trust can be avoided.
7. Process for Appointing or Removing Directors: By having a set procedure for how directors are appointed, re-appointed, or removed, potential disputes related to these processes can be prevented.
8. Dividend Policy: A common point of contention is the distribution of profits. A clear dividend policy within the agreement ensures that all shareholders understand and agree on how and when dividends are paid.
9. Transfer of Shares: Establishing conditions under which shares can be sold, or rights of first refusal, ensures that shareholders have clear expectations about share transfers, which can be a significant source of disputes.
10. Future Funding: The agreement can outline procedures for raising future capital, whether shareholders have the right to participate in future share issues, and what happens if they choose not to, thereby averting potential disagreements on dilution of shareholdings.

In essence, a Shareholders’ Agreement is a proactive measure that anticipates areas of potential conflict and provides solutions, ensuring that the company’s interests are always at the forefront. Engaging our lawyers can assist in crafting a robust agreement, primed to safeguard your company against internal disputes.

Alternative Dispute Resolution (ADR) offers a more flexible, cost-effective, and potentially less confrontational means of resolving director and shareholder conflicts in the UK. These methods can often be more suitable than litigation, especially considering the nature of relationships in a business setting and the need for confidentiality. There are several forms of ADR we have used to resolve and assist clients achieve successful outcomes:

1. Mediation:

• Process: An impartial mediator facilitates a discussion between the conflicting parties to help them find a mutual resolution.
• Benefits: Mediation is confidential, usually quicker than litigation, and allows the parties to control the outcome, preserving business relationships.
• Application: Mediation can be effective in addressing miscommunication, misinterpretation of shareholder agreements, or disagreements over business strategy.

2. Arbitration:

• Process: An arbitrator (or panel of arbitrators) makes a binding decision on the dispute after evaluating the evidence and arguments presented by both sides.
• Benefits: The process is private, and the parties can select an arbitrator with specific expertise related to their industry or the nature of the dispute. The result is final, limiting protracted legal battles.
• Application: Arbitration can address more technical disputes, such as those related to the interpretation of contracts, financial disagreements, or claims of unfair prejudice.

3. Expert Determination:

• Process: An expert in the specific area of dispute is appointed to make a binding decision.
• Benefits: It is a quick method, especially effective for disputes requiring specialized knowledge. The process is confidential.
• Application: Commonly used for valuation disputes or conflicts where a technical evaluation is required, like asset valuation in a buy-out scenario.

4. Early Neutral Evaluation (ENE):

• Process: An independent third party offers a non-binding opinion on the likely outcome if the dispute were to proceed to court.
• Benefits: ENE provides clarity on the strengths and weaknesses of each party’s case, potentially encouraging an early settlement.
• Application: ENE can be beneficial in complex disputes where parties have vastly different views on the potential outcome.

5. Collaborative Law:

• Process: Both parties, along with their lawyers, engage in a series of face-to-face meetings to work collaboratively towards a resolution.
• Benefits: It is a more open and transparent process that promotes direct communication and problem-solving.
• Application: Useful for parties who are willing to cooperate but need legal guidance during the process.

In many cases, Shareholders’ Agreements or Articles of Association may already stipulate that certain ADR methods must be attempted before resorting to litigation. Even if they do not, considering ADR is often in the best interests of the company, as it tends to be more efficient and can protect the company’s reputation and interpersonal relationships.

However, ADR may not be suitable for all director and shareholder disputes, especially where one party is particularly uncooperative or where legal precedent is required. Seeking expert advice from our expert lawyers, can guide you on the most appropriate method for your specific circumstances. Several of our lawyers are also trained mediators and provide invaluable advice on tactics and strategies to optimise the prospects of achieving an outcome you are happy with.

Challenging a director’s remuneration when it is believed to be excessive or unfair is a common concern among shareholders and company litigation disputes, especially in scenarios where such remuneration does not seem to align with the company’s performance.

1. Direct Engagement:

• Initial Discussion: Before taking formal steps, it is sensible to consider discussing your concerns with the board or the remuneration committee. It is possible that through dialogue, a better understanding or even resolution can be achieved.
• Written Concerns: If informal discussions do not yield results, escalate your concerns by writing a formal letter detailing your reservations.

3. Use Shareholder Rights:

• Ordinary Resolution: Under the UK Companies Act 2006, companies are required to put their directors’ remuneration policy to a binding shareholder vote at least every three years. While this vote is binding, another resolution on the annual remuneration report is advisory. If there is significant opposition to the advisory vote, the company must explain how it plans to address shareholder concerns.
• Special Resolution: For significant changes, such as altering the company’s Articles of Association to insert provisions on director remuneration, a 75% majority might be required.

4. Engage Other Shareholders: If you are a minority shareholder, consider engaging with other shareholders. A collective challenge is more influential than individual dissent. This is especially true for institutional shareholders who hold substantial stakes in the company.
5. Attend Annual General Meetings (AGMs): AGMs are a platform where shareholders can voice their concerns directly to the board and vote on certain matters, including remuneration reports.
6. Seek Legal Remedies:

• Unfair Prejudice Petition: If you believe the director’s remuneration amounts to a conduct that is unfairly prejudicial to the interests of the shareholders, you may consider filing an unfair prejudice petition.
• Derivative Action: This is a claim brought by a shareholder on behalf of the company against its directors for breach of their duties, which could potentially include awarding themselves excessive remuneration.

7. Public Scrutiny and Media: Sometimes, shining a public spotlight on excessive director remuneration can result in reputational issues for the company and its directors, potentially leading to an internal reassessment.

We understand the nuances of director and shareholder disputes and is dedicated to ensuring your rights and interests are firmly upheld. Navigate the complexities of shareholder rights with confidence, backed by our expert guidance.

Please call us on 0207 459 4037 or complete our booking form below for a Free Consultation with one of our expert director and shareholder dispute lawyers today.