- Posted by admin
- On October 25, 2018
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The demise or failure of a company can often be caused by shareholder disputes. These generally arise due to one shareholder perceiving that they contribute more to the company than the others. It could be that they do bring more work in or make more profits, but this does not entitle them anything more than what has been agreed. It is the actions they take that they need to be aware of. These disputes are usually where the shareholders are also directors, i.e. owner managed companies. Often in these situations the shareholders see assets of the company as being ‘theirs.’
I refer to the structure of a company. The shareholders are the owners. It is them that would buy the shareholding. This even applies on a set up basis when their shares may be £1 each. The shareholders then appoint the directors. It may be themselves. It is the directors that run the company. They will build up the company and it will probably acquire assets such as, office equipment, plant, vehicles, as well as build up cash, debtor, work in progress and contracts. These assets belong to the company.
If a shareholder wants some money or other assets out of the company, a dividend will need to be declared at a meeting of the directors and an agreement to this is required.
In most disputes, the aggrieved shareholder tends to take assets of the company for their own gain and walk away from the company. They may only take half of the cash at bank and half of the contracts in accordance to their 50% shareholding, but they are in the wrong on so many levels by doing this without agreement.
- They have fiduciary duties to consider;
- They have the company creditors to consider;
- What they perceive as being their share may not be;
- If no agreement is in place, damages claims could be brought against them resulting in large legal costs;
- The blame culture between the individuals involved is not attractive to their contacts and customers (past and present).
So what should shareholders do if they want to part company?
- Discuss your grievances. Tell each other how you feel. If you contribute more, is there a reason for this (such as location.) If it is, could different cost centres be set up where the individuals are remunerated based on performance or profits?
- If you do decide to split, this needs to be done in a dignified manner which is agreed and documented so there are no misunderstandings.
- Don’t forget that assets to be distributed to shareholders, need approval from the directors and a dividend declared. This dividend will then be accounted for on their individual’s tax return.
Claire Foster, our licensed Insolvency Practitioner is familiar with the situation and can offer valuable advice to people in this kind of predicament. Do not hesitate to call her on 01302 965485 for a chat. Initial advice is free with no obligation.