gerrysims
Blogger
Share this content
0
7
10951

Dispute between 50:50 shareholders

Dispute between 50:50 shareholders

Is there a process by which disputes between 50:50 shareholders can be forced to resolution ? One wishes to quit the business and either sell his shares or the whole business. The other doesn't and won't buy out his fellow shareholder. No shareholders agreement.

I don't act for the company and have been approached by the shareholder wishing to depart and start a new business.

Replies

Please login or register to join the discussion.

avatar
By occca
06th Nov 2010 11:08

Mem & Arts

Is there nothing in the Mem & Arts ? 

Thanks (0)
avatar
06th Nov 2010 11:12

50/50 Shareholders

I assume they are both directors

First check the Company Articles. Sometimes,albeit rarely, these have a built in answer for this problem

However if they don't, you cannot force the remaining shareholder to buy the shares. Also no-one outside the company would seriously consider putting themselves in this position by buying them

Your realistic solutions are to ask both parties if they would agree to arbitration or for the leaving shareholder to apply to the court to have the company wound up.

For your sanity's sake do not act for either side in this matter until it is sorted. The scope for client moaning would be  immense. Instead recommend a solicitor

  

Thanks (0)
avatar
06th Nov 2010 11:18

The road to insanity -

We had this sort of situation a few years ago.

50/50 partners in a business.   They are both women so maybe "female logic" had something to do with it, but, I will never forget a phone call I received one evening from one of the partners who said to me - "I will pay £300,000 for her half, or, I want £360,000 for my half". 

Thanks (0)
06th Nov 2010 16:04

Good advice

Thanks everyone. Nothing in the M&A unfortunately so I will take the cowards (sensible) route and point them at a solicitor.

C_D I wouldn't be surprised if these two had that view too.

Yet another good advert for shareholders agreements.

Thanks (0)
avatar
08th Nov 2010 10:00

CPOS?

Would the prospect of the company purchasing the shares from the selling shareholder be more palatable? A selling point could be that at least the purchaser doesn't have to dip into taxed income.

Thanks (0)
avatar
By raylevy
08th Nov 2010 13:11

a practical solution is still the best bet... says the solicitor

There is always a legal way out of a mess like this. But, it just takes you into another, bigger mess and one which costs both sides more money, and will no doubt end up in the business folding long before the dispute gets near a court room.

The end game is always either:

(a) one party buys the other out; or

(b) wind up the business and each goes their separate ways.

Now, either the court can enforce one of the above two options (see time, effort, cost, business failure above). Or, the parties can sort it out themselves.

Usually, due to the bad blood between the partners, no sensible solution can be achieved in practice, unless they appoint either solicitors or other middlemen (eg accountants) who can talk sensibly without mud-slinging and personal attacks.

In fact, to help further, there's an almost foolproof way of deciding right away which of the above two options is the answer. It usually goes by (a) if the company has any value left, and (b) if it doesnt.

Finally, if the client's solicitor is half decent, he should explain the costs of legal fighting up front, and its surprising how that can concentrate the mind to sorting out an otherwise 'intractable' problem!

best of luck,

Ray

 

 

Thanks (0)
avatar
10th Nov 2010 14:44

Another advert for shareholder agreements?

Shareholder agreements sound good in principle but the experience of one of my clients would suggest that is more in theory than practice.

He had an agreement with his co-shareholder, all legally drafted, signed off etc etc. When the co-shareholder left, he and his advisers drove a cart and horses all over the agreement and got away with it: they didn't like the agreed valuation formula, they wanted much more than that; they didn't like the no compete clause (which was far from onerous) and took company customers and ongoing jobs with them; they didn't like this, they didn't like that.

And what did my client's solicitors (having sought barrister's counsel) tell him? "Oh, these things are notoriously difficult to enforce if we go to court." (For the avoidance of doubt, these were different solicitors from the ones who drafted the original agreement and are a regional practice, so presumably know what they are talking about).

End result is that my client hasn't parted with any cash but still has a grumpy shareholder acting as a drag anchor on growth and change, and possibly benefiting from his hard work via increased equiy value.

Thanks (0)