Being involved in running a business is very challenging. You may be responsible for any number of matters that concern the business: its strategic placement in the marketplace; its financial health & cashflow; and its product/service creation and innovation processes; and its marketing. These responsibilities can weigh heavily on directors, and they can lead to disputes arising with shareholders in the organisation.
Shareholders will undoubtedly have their own vision for a business, with a view to maximising the financial return that they enjoy from its success. It is often the case that business shareholders and directors view the business in very different ways, meaning that it is very easy for there to be disagreements as to how the business is ran. The relationship between company owners and management should, in most respects, be uncomplicated. Unfortunately, there may be times where shareholders disagree with their colleagues or company management: a shareholder is threatening the financial stability of the business; company management is not forthcoming about the release of a dividend; or, there is concern that the business is being mismanaged. If such disputes arise, it is wise to have them handled by expert lawyers that understand the rights of the parties involved. This will allow for the dispute to be settled effectively and efficiently, causing as little disruption as possible to the business.
Resolving Commercial Disputes
At Sherwin O’Riordan, our specialist dispute resolution lawyers are routinely involved in assisting in the resolution of disagreements between directors and shareholders in a business. If you are concerned about a difference of opinion, or are concerned that future disagreements could have a negative impact on the business, our team will be able to help you.
How can disagreements arise?
Businesses are complex organisations, where many people will have different opinions of what should be done with business resources. Ultimately, all parties will be interested in the success of the organisation, but people can lose sight of this when attempting to make their views known. Disputes with shareholders can happen for a variety of reasons:
Strategic direction of the business
By committing what is often a significant amount of money, shareholders will understandably be very interested in the direction that the business is being taken. In most cases, they will be able to trust the vision of the business’s directors to lead the commercial endeavour to success. However, in some instances, whether because they have not been convinced of the strategy that the business is taking, or a belief that they have identified a more lucrative option that the business should take, they may question the direction the business is going in.
Payment of dividends
Shareholders will have a particular interest in the payment of a reward for their investment in a business, and direct contribution to its success: the payment of dividends. The difficulty, however, is that directors may hope to retain more of the profits for a particular year in the business, to reinvest them and contribute to further success. Shareholders may not be willing to accept such a decision, or may perhaps object to what they deem to be a poor return on their investment.
Some shareholders may have a significant interest in the business, but not enough to quash the decisions of directors. As a result, they may be particularly zealous in questioning your decision making, for fear that they will be outmanoeuvred by other shareholders or your director colleagues in making decisions regarding the business. Such behaviour can severely hinder decision making in the business.
Lack of performance on the part of directors
Directors owe a number of responsibilities to the business that they serve, chief among these: the duty to act in the best interest of the company. Shareholders may be particularly wary of directors’ decision making, and may use this as a ground questioning whether or not a business’s directors are performing their duties properly.
As a director of a business you may have been presented with these kinds of difficulties in the past, and have been unsure of how to deal with the matter. It is important that when dealing with shareholder disagreements, you seek the assistance of lawyers who understand how to best manage the situation, and bring it to a peaceful resolution.
How can disagreements be resolved?
In most cases, it should be possible to resolve a dispute by reference to the founding documents of a business. In the case of companies, this will normally be the Articles of Association and the Shareholders Agreement. These documents are normally created at the moment a business is established, where areas for potential disagreement are pre-empted, the process is outlined as to how disputes should be handled by shareholders if and when they arise. These documents can be incredibly useful in avoiding the need to waste important business resources on costly courtroom litigation.
In some instances, your business may not have a Shareholders Agreement. These kinds of situations are the main reason why it is important to have experienced lawyers to assist, as there may be a need for more careful handling of the situation:
Negotiating Shareholder Disputes
In the first instance, it is wise to try and understand the basis for a shareholders disagreement. Through negotiation, the matter may be resolved peacefully with little damage being done to either the business, or the relationship between you and the business’ shareholders. It would also be an option, if negotiations are successful, to draft a Shareholders Agreement at this point, setting out how any and all future disputes should be handled, and preventing a need to repeat the exercise in the future.
Litigating Shareholder Disputes
It should only be in the last instance that the courts are approached to consider a dispute between shareholders and directors. As a matter of practice, the courts encourage business people to reach some kind of agreement without the need to involve them where possible. Where, however, this is not possible, the dispute may need to become the subject of court litigation. It is important to be aware however that exposing your business to courtroom adjudication may be both lengthy and very expensive. Furthermore, there will be a need for assistance from experienced business lawyers that think strategically, and can defend your interests effectively.
Disputes involving a business are at best avoided wherever possible. It is understandable that they may arise from time-to-time, but with careful planning and the assistance of experienced lawyers, the business relationship between shareholders and directors can be clearly structured to reduce the need to resort to lengthy, and expensive dispute resolution processes.
Contact our Shareholder Disupte Lawyers in Dublin
At Sherwin O’Riordan, our expert dispute resolution team are passionate about helping businesses to avoid the need to waste resources unnecessarily. We understand that you will look to have your business’s interests attended to by commercially oriented, expert business lawyers. If you are concerned about a dispute, and how it will impact your business, speak to our team. We will be able to provide you with effective solutions to your problem: the drafting of agreements to avoid disputes in the future, negotiate with other interested parties to resolve a disagreement; or protect your interests in courtroom litigation. At Sherwin O’Riordan, we place the needs of our clients and their business at the heart of our practice. Contact our team today.
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