Tips for Resolving Shareholder Disputes

No matter how great your business idea is, a dispute between shareholders can destroy an otherwise viable company.

The best way to avoid a shareholder dispute is to ensure you have a robust shareholder agreement in place so that the shareholders are all on the same page.

Shareholder Agreement

Generally speaking, you want the shareholder agreement to achieve two main things:

1. First, to clearly set out in writing the responsibilities and contribution expected from each shareholder
2. Second, if a major shareholder dispute occurs, the shareholder agreement should contain a mechanism for one shareholder to buy out the other shareholder at fair market value.

Resolving Shareholder Disputes

Unfortunately in our experience, when there is a dispute, often the parties don’t have a shareholders agreement.  Or if there is one, the shareholders’ agreement is often inadequate and does not provide a way resolve a shareholder deadlock.

In this situation, a shareholder can use section 174 of the Companies Act to ask the Court for relief due to oppression by the other shareholder.

If the shareholder can successfully prove they been oppressed by the other shareholder(s), then the most common remedy is to request the Court to order the majority shareholder(s) to buy-out the minority shareholder at fair market value.

At Capstone Law, we can help you draft a robust shareholder agreement to prevent shareholder disputes.  But If a dispute has already occurred, we can help you resolve it through negotiation or through Court proceedings.