Disputes with shareholders

What are shareholders' disputes about?

Usually in companies, the disputes involving shareholders arise either from the company's articles of association or from the agreements that shareholders enter into. A dispute based on the articles of association relates to the day-to-day operation of the company, the acts of its representatives, etc. Another type of dispute is about the strategy, organisation, financing and share purchase of the company. Usually these disputes arise when there is no formal, professionally-prepared shareholders agreement with clear terms and conditions. Shareholders agreements vary in length and complexity depending on the company’s structure.

Ways to resolve a dispute with shareholders

There are a various ways for your dispute to be resolved, such as going to court or through Alternative Dispute Resolution (ADR) methods such as mediation and arbitration. Before deciding whether to go to court, you may want to consider the cost of litigation and how it compares to your expected award.

Dispute resolution in court

If there is no dispute resolution clause in the articles of association or shareholder agreement, you can go straight to court. But a court’s decision is only valid in the country in which it is based. This may be a problem if your company operates in more than on country.

Also shareholders have the legal power to sue directors on behalf of the company for any loss suffered by the company as a result of directors’ negligence, default, breach of trust or breach of duty.

Dispute resolution by ADR

ADR methods such as mediation or arbitration is mainly used to resolve disputes with shareholders regarding the share purchase agreements. Since the value of company shares depend on the market and the company's performance, share price readjustment are required when it comes to selling shares under a shareholders' agreement. if there is a clause on readjustment of share purchase price by an expert, you can appoint an expert auditor who will carry out the valuation of your company's assets, check the accounts, estimate its future performance and so on to determine the adjustment. But if the clause makes the expert's opinion binding and you or the shareholders do not agree with it, then you can seek a determination of the share price in the ordinary or arbitration court. Otherwise the share purchase agreement may be invalidated because the price was not determined.