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DISPUTES BETWEEN SHAREHOLDERS AND DIRECTORS

Thursday May 12, 2022

In any business situation, there may be tensions between the shareholders and the directors of the business. In most situations, these tensions can be overcome through effective communication through the directors and the shareholders. However, if this communication breaks down then a dispute might arise. Some of the common reasons why this might occur in a business environment include:

 

Breaches of a Director’s Duties

Anyone formally appointed to the board of directors of a UK company has to take on certain legally binding duties as part of their role as a director.

The first of these duties requires a director to agree to follow the company’s constitution and acting for proper purposes (e.g. not plundering the assets of the company). Directors also have a duty of care, requiring them to carry out their work as a director with a reasonable level of skill and competence.

The other duties of a director include avoiding conflicts of interest, disclosing any self-dealing, agreeing not to take any benefits from a third party and a duty to promote the success of the company itself.

If a director breaches one or more of these duties, then their company may take legal action (for example taking out an injunction). A dispute between directors and shareholders might occur if some or all of the shareholders feel their director has breached their duties to the company.

 

The Company’s Management and Strategy

It is quite common for a board of directors to have differences of opinion on the management and strategy of the company. Similarly, shareholders might not necessarily see eye-to-eye with the board on a variety of strategic issues. If these differences cannot be resolved, then it may cause tension to spill over into a dispute.

 

Dividends

Another potential source of dispute is the dividend policy of the company. Particularly if that dividend policy favours some shareholders over others.

 

Disparities between Salaries

Differences between the salaries of various directors on the board can also lead to a dispute particularly if the reason for the difference in pay is not communicated to all of the board members, or if the role of each board member is not properly defined.

If you need to speak a specialist solicitor who deals with director/shareholder matters, Speak to one of our expert Dispute Resolution team