Shareholder dispute resolution

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Most businesses are carried on through incorporated companies, and when those companies have more than one shareholder, the relationship between the shareholders can go through difficulties. Disagreements about the direction of the business, or external challenges faced by the business, can give rise to shareholder disputes that can threaten the company’s business and even its existence.

In this situation, achieving the best and fairest resolution of disputes is vital to all parties.

Planning for the possibility of dispute

Business people joining forces to form a company should always be aware that their interests may one day differ. A shareholders’ agreement can be crucial in addressing such differences, by setting out clearly what rights and obligations go with being a shareholder as future events unfolds. The company’s articles or bylaws can also set out rights and obligations which much be understood in addressing any shareholder dispute.

If differences prove irreconcilable, an aggrieved shareholder may wish to initiate such mechanisms as the “shotgun” or “put/call” options that are typical of most shareholder agreements. Under certain specified conditions, activation of a shotgun clause compels other shareholders to either buy out the dissenting shareholder or sell their shares to the dissenter. A put/call provision requires the company, rather than the shareholders, to buy out the dissenting shareholder.

Taking legal action

Short of departing the company, an aggrieved shareholder may wish to petition the court to prevent the company’s board of directors from pursuing a certain course of action or to compel them to take some other course of action. Courts can, for instance, order the company to process a shareholder proposal and order a shareholder meeting to consider the proposal. Where a company has no auditor, a shareholder may apply to the court to appoint an auditor.

If a shareholder believes the executive or board is acting in a way that harms the company, a shareholder may seek court permission to bring a “derivative” action on behalf of the company. Any award in a derivative action is made to the company, not the shareholder.

Where a shareholder believes the affairs of the company are being conducted in a manner oppressive to the rights of one or more shareholders, that shareholder may apply to the court for relief from that oppression. In such cases, the shareholder must show that the company’s treatment of some shareholders is different from its treatment of other shareholders, and that this treatment has caused harm. If the court finds oppression has occurred it may make any order it considers appropriate to remedy the matter.

lawyer experienced in corporate matters can provide advice and representation to shareholders and boards in dispute.

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