When Shareholders don't see eye to eye - Issues for remaining shareholders

At their heart, companies involve people – in the capacities of officers and shareholders. And where people are involved, personalities and expectations of those people often clash leading to disputes.

Shareholder disputes are a staple of our work. In the current environment we are finding these sorts of disputes on the rise. 

When one shareholder decides to leave, the remaining shareholders need to know their rights and options quickly. These rights and options will usually be found in a formal shareholders agreement previously signed by the parties. If there is no such agreement, then resort will need to be had to the Corporations Act 2001. 

The most common issues that we find arising in disputes between shareholders are:

1. Restraints of trade imposed on outgoing shareholders;

2. Procedures on how shares are to be valued and transferred;

3. Time limits (often strict ones) which apply to valuations and transfers of shares;

4. Procedures for how disputes between shareholders are to be resolved.

Often, parties will consult with the lawyers who drafted the shareholders agreement about their rights. This can cause problems because:

1. To avoid conflicts, those lawyers can only generally act for the company itself rather than individual shareholders;

2. There might be issues arising from the shareholders agreement (e.g. where clauses have been drafted imperfectly or things have been missed) and the original lawyers face difficulties in trying to defend their position.

Shareholder disputes can create difficult times for remaining shareholders having to deal with the fallout of the dispute. 

As litigators who are not involved in the drafting process, we are well positioned to provide objective and realistic advice on the way in which shareholders agreements operate and find the best and most commercial solution for those left behind.