Shareholder disputes

A shareholder dispute is a disagreement between shareholders, directors or partners about how a business should be run, including decision-making, profit distribution or the conduct of individuals within the company.

An unfair prejudice claim is brought by a shareholder who believes they have been treated unfairly, such as being excluded from decisions or denied financial benefit. The court can, under section 994 of the Companies Act 2006, order remedies, including a buy-out of the shareholder’s interest.

A derivative claim is brought by a shareholder on behalf of the company, usually where those in control have failed to act against wrongdoing.

You should seek legal advice as early as possible. Early advice helps you understand your position, preserve key evidence and avoid taking steps that could weaken your case. It can also allow you to take timely action to protect your shareholding or prevent further harm to the business.

If shareholders cannot agree, this can create a deadlock which disrupts the business. Resolution may involve negotiation, restructuring or, in some cases, court intervention.

Yes, many disputes are resolved through negotiation or mediation, which can be quicker, more cost-effective and less disruptive than litigation.

If you are being frozen out of management or decision‑making, this may be unlawful, particularly where you had a legitimate expectation to be involved. You should review the company’s articles of association and any shareholders’ agreement to identify any enforceable rights. In some cases, this conduct may give rise to a claim for unfair prejudice.

A breakdown in communication can result in a deadlock at both board and shareholder level. You should review the company’s articles of association and any shareholders’ agreement to see whether there is a mechanism to resolve this. If the non-communication forms part of a wider course of exclusion or breakdown, it may give rise to a claim for unfair prejudice. If the parties cannot agree terms and are unwilling to sell the business, a shareholder may in some cases petition to wind up the company on just and equitable grounds, although this is typically a last resort.

Shareholders are not automatically entitled to dividends. The decision to declare dividends usually rests with the directors, taking into account their duties, the financial position of the company and available reserves. Issues can arise where profits exist but are not distributed, or where value is extracted in other ways, which may give rise to a claim.

Directors must act in the best interests of the company. Excessive remuneration, whether by salary or other benefits, may amount to a breach of duty. This can give rise to a claim by the company, often through a derivative action, or a claim for unfair prejudice where it disadvantages shareholders. What is excessive will depend on the circumstances, including the company’s size, performance and market norms.

Shareholders’ rights to information are limited unless expanded by the company’s articles of association or a shareholders’ agreement. Statutory rights include access to certain company registers, accounts and formal records, but there is no general right to inspect internal documents such as management accounts or board minutes. In the context of a dispute, the court may order wider disclosure where necessary.

There is no general right to force a buy-out unless this is provided for in the company’s articles or a shareholders’ agreement. In some cases, a shareholder may seek an order for a buy-out through an unfair prejudice claim or, alternatively, consider a petition to wind up the company on just and equitable grounds.

Generally, no. A majority shareholder cannot force a minority shareholder to sell unless there is a contractual right to do so or in certain statutory situations. In some cases, the court may order a sale where it is appropriate, including where conduct has been unfairly prejudicial.

There is no automatic right to remove a shareholder simply because they are disruptive. You should review the company’s articles of association and any shareholders’ agreement to determine whether any mechanism exists. In more serious cases, where the shareholder’s conduct is unfairly prejudicial, the court may order a buy-out. However, shareholder activism or disagreement alone is unlikely to be sufficient.

Generally, no. A minority shareholder cannot block decisions unless they have specific voting or veto rights under the company’s documents, or the decision requires a higher threshold, such as a 75% majority, and they hold enough shares to prevent it.

A director can usually be removed by an ordinary resolution of shareholders, requiring a simple majority. However, this does not affect any contractual claims they may have. Importantly, removal as a director does not remove their status as a shareholder or employee, which can lead to ongoing disputes if not properly resolved.

Time limits depend on the type of claim. Unfair prejudice claims do not have a strict limitation period, but delaying can weaken your position. Claims for breach of duty or derivative actions are generally subject to a six-year limitation period unless fraud or wilful concealment exists, while contractual claims are usually six years, or twelve years if the contract is executed as a deed.