It’s a fact of life that directors and shareholders of businesses won’t always get on; the close working partnerships that these roles require can put a great deal of strain on a relationship, particularly where livelihoods and income are concerned. But what are the most common causes of dispute and how can they be managed?
Grounds for disagreement
There are countless reasons why directors and shareholders may disagree, such as:
- Financial reward; is one director receiving a greater share? If so, is that share justified or is it unfair?
- Business strategy; is the direction the business is taking agreed by all parties or do some feel that change is necessary (or to be avoided)?
- Behaviour of one party; for example, is one director not acting within the best interests of the company? Do they have sideline interests or investments which conflict with their role?
- Unequal contributions; this may be financial or in terms of time spent working in the business, but if one or more parties feel that another is not pulling its weight in contribution, this can lead to discontent.
- Share pricing; if and when shares are bought or sold, some directors and/or shareholders may feel that the pricing is incorrectly calculated.
Avoiding disputes
Key to any successful relationship is good communication. Directors should prepare themselves properly prior to board meetings and perhaps even discuss some trickier points beforehand to enable the meetings to be as productive as possible. During board meetings, ensure that proceedings run smoothly with time controlled and the agenda observed. Voting should be efficient and conducted at the right time once an issue has been discussed appropriately.
Non-executive directors can add a different dimension to a board; they may have particular business expertise which can assist in decision-making and, as they do not have a personal stake in the company, can offer advice which is unbiased and more practically-led.
Managing a disagreement
The first port of call for guidance should be the company’s own Articles of Association and/or any shareholders’ agreement which may have been prepared. Both documents should contain a procedure for managing conflict between directors and may allow, for example, for decisions to be passed by a majority.
In the absence of any other procedure, and in the interests of equality, directors generally have one vote each during a meeting. If there is an even split, the chair may be given the casting vote. There are some company decisions which also require the approval of shareholders, such as:
- the appointment or removal of directors;
- declaration of dividends;
- proposed changes to Articles of Association or the company’s trading model;
- any proposal to wind up the company; and
- proposed property transactions
Termination
If, as a shareholder or director, you feel you want to terminate the relationship, there are a number of ways to deal with this depending on your role; you may be a director, employee or shareholder and you will need to ascertain this. Resignation can, and likely will, impact on your employment rights and you may also be required to sell your shares on departure.
If you are a shareholder, the clearest way to exit will be to sell your shares; the Articles and any shareholders’ agreement will deal with the process for this, including anyone who is to be offered the shares in preference to others. Directors are able to resign and the process is straightforward for this, although you are recommended to seek legal advice to ensure that you are excluded from any future liability in respect of decisions made during your directorship.
Mark Boon, partner at MBH, deals with company commercial matters and will be happy to discuss any issues affecting your business, partnership or limited company. Contact Mark to make an appointment on 01942 206060.
About MBH
McCarthy Bennett Holland, established in Wigan since 1971, offers a personal service across a wide range of legal practice areas, including residential and commercial property, family and matrimonial, wills and probate, employment, personal injury and company commercial.
Contact Mark Boon to discuss your commercial or other legal requirements in confidence at:
www.wigansolicitors.com
Tel: 01942 206060
Address: 26 Bridgeman Terrace, Wigan WN1 1TD
Twitter: @MBHSolicitors
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