Our job is to find a solution to your shareholder dispute. We analyse the evidence, plan a strategy and then implement. The team includes tax expertise and specialists for the valuation of shares in private companies.
Please do call us to discuss your dispute. We scope cases and understand clients costs concerns.
Reasons to choose Gannons Solicitors to resolve your shareholder dispute
We are specialist solicitors for the resolution of shareholder disputes in private companies. This gives you the benefit of experience and:
- We are familiar in dealing with the competing interests of directors and shareholders. We deal with shareholders who have fallen out and minority shareholders.
- We have the knowledge to think of the best tactics and apply them. Most of our cases are settled as we find a solution but in the appropriate case we have the skills to litigate.
- We have a dedicated team and can respond quickly to problems.
Based on questions we see arising we have set out some guidance on how to solve shareholder disputes
Options to resolve a shareholder dispute
Unfortunately, not all businesses have detailed articles or a shareholders’ agreement covering the transfer of shares where there is a dispute. In some cases the paperwork has been left in a drawer and not signed. Based on past experience we have seen the following ideas work.
Company buy back of shares and cancellation
The great advantage to a company buy back is that the acquisition cost is paid for by the company. The shares are cancelled meaning that all remaining shareholders receive an uplift in the size of their shareholdings. One potential draw back is the company has to have sufficient surplus cash to pay for the shares. The tax treatment of the proceeds in the hands of the seller also differs for a company buy back.
Another problem often found in a shareholder dispute situation is that 75% of shareholders have to approve the company buys back the shares.
Splitting the business
Businesses can be split up and re-organised to enable shareholders to go their separate ways. There are many choices all of which depend upon the specific facts.
Variation of rights
One shareholder may wish to relinquish management control but retain some income and capital rights. This will be particular to founders looking to step aside but retain some financial reward for their work. Shares can be varied so that certain rights are withdrawn. There are often creative solutions.
Where cash flow is an issue the consideration payable for shares can be deferred. But care is needed as:
- Deferred consideration payments can if incorrectly structured affect a seller’s tax position particularly if the company is buyer;
- The seller may look for security over the instalment payments which buyers are keen to avoid;
- Interest rates may kick in if a default on instalment occurs; and
- Earn outs are also common but a seller will need to think carefully where he is relinquishing full control and thus unable to control business direction.
Independent valuation of the shares under a shareholder dispute
Where the dispute is about the price payable for shares an independent expert can be the solution. The terms of appointment will need to be thought about as there are no fixed rules. The instructions should ideally cover matters such as:
- The basis of valuation – will it be on a whole company basis or on the basis of the minority shareholding;
- The value to be attributed to goodwill;
- Who pays the costs – is it the company, the shareholders, or just one shareholder;
- Is the valuation binding;
- Are the parties allowed to make representations;
- It is to be assumed the business will continue as a going concern.
We are equally as familiar with defence work as we are with bringing proceedings. There is a big emphasis on proportionality under the legal system. Our fees are competitive and instructing a boutique firm like us can point towards proportionality.
Potential claims available in a shareholder dispute
The types of claims we can deal with include:
- Seeking a declaration from the court
- Order for winding up
- Minority shareholder unfair prejudice petition
Implementing settlement of the shareholder dispute
Some companies have set out an agreed exit path in their articles or shareholders’ agreement. You need to review the documents to see what your position is. In some cases there will be detailed provisions relating to:
- When the shares can be sold;
- How the shares will be valued on transfer;
- Who the shares can be transferred to; and
- What restrictions post sale are placed on the ex-shareholder.
The timing for execution of documents can be important if the departing shareholder is hoping to claim entrepreneurs’ relief as one of the conditions is employment or directorship at the point of transfer of the shares.