A solution to these problems is to provide for disputes in your company’s constitution and/or in a Shareholders’ Agreement in advance of any disputes arising. This can save you a great deal of time and money.
You can ensure that the Articles and the Shareholders’ Agreement say that in the event of a dispute you should go to Mediation in the first place.
Mediation is a service we offer.
Participating in Mediation is often cost effective and can be organised very quickly, rather than a long drawn out process of litigation which tends to be expensive.
But if Mediation fails, the Articles of the Shareholders’ Agreement can impose an agreed mechanism for shareholders to resolve disputes around the company.
Commonly, in the Shareholders Agreement an aggrieved shareholder would have the right to require others to buy them out at a fair price.
Often there are pre-emption rights, i.e. one side must offer to buy the other side out. Often the one offering the highest price can buy the shares of the other.
It is important to consider that a shareholder/director who works in the business is very likely to be an employee, even where there is no written contract of employment.
Employment rights will therefore apply as with any other employee. Care needs to be taken to ensure that these rights are considered and settled as part of any final agreement.
Major decisions of a company are made by the directors in Board meeting, usually by a majority vote with the Chairperson having a casting vote in the event of a draw. The majority of the Board can usually force through any decisions.
But these normal rules do not apply in some important decisions by the Board which need to be passed by a higher percentage than just a majority vote. Sometimes there needs to be unanimity in voting. This is infrequently achieved.
All directors have legal duties and responsibilities owed to the company. That duty is to act in the best interests of the company. Breach of that duty could make the directors in breach personally liable to pay over damages which may include any profit they have made/reimburse the company for losses arising from the breach.
Usually, directors’ and officers’ liability insurance is taken out & the company may agree to indemnify directors against certain liabilities.