Issues and Remedies in a Shareholder Dispute

A shareholder or stockholder is a person who has a share of stock in a company or corporation. Based on their holdings or stocks, shareholders are considered owners of a corporation.

Being part owners of the corporation, shareholders enjoy certain rights although with limited functions. Among these rights are the following:

• Receiving a dividend from the corporation


• Attending and voting at shareholders meeting


• The right to convene shareholders meetings if they hold a minimum of 10%


• Receiving company accounts

But sometimes, disagreements occur among shareholders or between the company and its shareholders. A violation in shareholder rights may sometimes cause trouble for the company. In some cases, shareholders may quarrel among themselves. When this happens, a shareholder dispute ensues.

hareholder disputes are common and there are caused by various reasons. Disputes usually arise because of the following reasons:

• disagreements over the direction and development of the company


• poor personal relationships


• conflicts of interest (because a director has interests in another business)


• the terms of directors' service contracts


• concern over whether the board is meeting its legal responsibilities


• financial issues

Disagreement among the shareholders may be avoided if areas of conflict can be identified beforehand. By anticipating these common causes of conflict, a dispute can be prevented.

However, knowing the potential issues of contention is not enough. The prevention of possible shareholder dispute can be undertaken during the drafting or preparation of the articles of association or the shareholder’s agreement.

In this regard, you will need the assistance of a corporate lawyer who can help draft the document. Having an article of association or a shareholders' agreement in advance can save you a great deal of time, money and the aggravation of resolving disputes.

A shareholders' agreement often define and regulate the actions of shareholders in a corporation. It may contain regulation on the following matters:

• the nature and amount of initial contribution (whether capital contribution or other) to the company


• the proposed nature of the business


• how any future capital contributions are to be made


• the governing law of the shareholders' agreement


• ethical practices or environmental practices


• allocation of key roles or responsibilities


• regulating the ownership and voting rights of the shares in the company, including lock-up provisions, restrictions on transferring shares, or granting security interests over shares, pre-emption rights and rights of first refusal in relation to any shares issued by the company (often called a buy-sell agreement), "tag-along" and "drag-along" rights, and minority protection provisions


• control and management of the company, which may include power for certain shareholders to designate individual for election to the board of directors, imposing super-majority voting requirements, imposing requirements to provide shareholders with accounts or other information that they might be entitled to by law

In some instances, articles or agreements may also contain provisions for the resolution of any future disputes between shareholders. A shareholder agreement would usually require mediation first and, if that fails, a means for the shareholders to part ways with the company.

At the most part, having a shareholder article or agreement in advance may held in check or prevent the occurrence of future shareholder disputes.