Shareholder Difficulties: A Guide

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It’s a sad truth that in business not all happy relationships can endure. Sometimes shareholders, especially minority shareholders will find themselves unhappy with the direction of the business and feel they have no recourse except the law.

Let’s look at ways to avoid reaching the point where your partners feel they have to invoke Article 994 of the Companies Act, 2006.

Establish The Facts

Even Sherlock Holmes needed to know the full story before he could solve the crime, so work out a detailed time line of what’s gone wrong.

What exact allegation has the aggrieved party made? Do they claim there has been a misapplication of funds? That decisions have been taken that devalue their shares? You need to trace their allegations to specific times and decisions, and see if you can produce evidence of why those actions were correct and legitimate in the circumstances.

Consult Your Documents

Your company is bound by Articles of Association which determine how it runs, and shareholders will have signed a Shareholder Agreement which will set out how to raise disputes and how they should be resolved, as well the rights of all parties in the contract. This should have been checked by a business lawyer, so you should be protected from spurious complaints.

It is possible that once reminded of the relevant passages from these documents the aggrieved party will be able to accept that you have acted legitimately, and no further action will be necessary.

Discuss

Before allowing matters to progress to a court, it is worth simply getting all parties in the same room at the time to discuss the grievance. This could be part of a formal process of arbitration, or a more informal meeting to ‘clear the air’. If the aggrieved party simply feels they haven’t had access to the same information as majority shareholders, and has been passed over, this can be a great way to resolve that dispute.

If there’s a more substantial grievance, this is a chance for all parties to take stock and if necessary admit mistakes were made and make some changes before embarking on potentially costly legal action.

If you make a good faith attempt to understand the other party’s point of view, and commit to winning them back over, you stand a good chance of success. Don’t forget, you both decided to work as partners to begin with.

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