Disputes among shareholders can lead to huge disagreements especially where the parties have not entered into a suitable Shareholders Agreement. Such agreements set up the rules of engagement between majority and minority shareholders and the Directors (who are usually also shareholders) who are in effective control of the company. In many cases the parties will have structured a joint venture or their investment in a business through the vehicle of private limited company. This is usually done for tax reasons and to avoid personal liability for stakeholders. Such arrangements can be viewed by the courts as a “quasi-partnership”, rather than less valuable shareholdings. These kinds of arrangements can become more complicated when shareholders are also employees of the company.
In a case of a normal minority shareholding the value of the shares is not great as a willing purchaser is unlikely to want to pay much for an interest which bestows little control or reward by way of dividend. In contrast a shareholding in a quasi-partnership is equivalent to a percentage share in the equity of the business and is usually worth more to existing shareholders so that they can control more of the company.
Shareholder Dispute Resolution Lawyers Middlesex
When such arrangements break down it is usually the minority shareholders who come out worse as they do not have control of the company or know about its finances and they need to consider making an unfair prejudice application to the Companies Court under section 994 of the Companies Act 2006. One of the issues which the court has to address is such cases is whether a genuine quasi-partnership existed or not, and that can be a hard fought and expensive exercise. In the case of a quasi-partnership the court usually orders one side to buy out the other for a percentage of overall value of the company, as valued by an expert.
If it is not feasible for one side to buy out the other, then the court can order the company to be wound up and any assets distributed after all liabilities of the company have been settled. This is the least satisfactory option as it involves the waste of a huge amount of legal and expert fees which all have to be paid by the parties from their own resources.
Whatever stage you may be at in the development or decline of your relationship with your fellow shareholders the expert shareholder dispute lawyers at The Sethi Partnership Solicitors can help you to resolve matters as quickly and cost effectively as possible with a strategic and pragmatic plan aimed at minimising the expense and delays of court proceedings.
If matters cannot be resolved by negotiation, we can assist you in taking Section 994 proceedings or presenting a winding up petition for dissolution of the company. We can also direct you to expert tax advisers to ensure any arrangement are as tax-efficient as practicable.
Contact our shareholder dispute resolution solicitors in Ruislip, Middlesex today
Examples of recent cases in which we acted for:-
- Investors in a restaurant business who acquired less than 50% of the shares of a company without entering into a Shareholders Agreement and were also employed in the business, who achieved settlement after we wrote a letter of claim indicating an intention to make a Section 994 application to the Companies Court.
- Respondent to a Section 994 application by minority shareholders, which resulted in settlement due to our advice and strategy.
- Prospective investors in a joint venture in the catering industry who were seeking to acquire a minority shareholding in return for an investment and who need advice on a shareholders’ agreement.
- Prospective investors in a company who were seeking to acquire preference shares in return for a time-limited investment and who need advice on a share purchase agreement and shareholders’ agreement.