Shareholder disputes (I): Preventing shareholder disputes

Differences in vision or interests can arise between shareholders, which may lead to conflicts. Such disputes can, however, put the continuity of the company under pressure and therefore require a careful and strategic approach. In this blog, we discuss the main causes of shareholder disputes and provide several options to prevent such conflicts.

Shareholder disputes can arise for various reasons. Some common causes are:

1. Lack of clear agreements
   A lack of clear agreements between shareholders is a common cause of shareholder disputes. If such agreements are missing, shareholders may have different expectations and therefore also divergent strategies for the company.
   
   
2. Differences in perspective between majority and minority shareholders
   Conflicts between majority and minority shareholders occur regularly. Examples include differing views on dividend distributions, entering into major investments, or preparing for the sale of the company. Minority shareholders may feel sidelined in these situations.
   
   
3. Conflicts with director-shareholders
   When a director-shareholder is dismissed, they generally retain their shares. This can create very unpleasant situations, especially when it concerns a minority shareholder. In some cases, the relevant shareholder is subsequently denied information and dividends, which can lead to further escalation.

Although conflicts can never be completely ruled out, there are various measures that can significantly reduce the likelihood of disputes.

1. Drafting a shareholders’ agreement

First of all, it is advisable to have a shareholders’ agreement drawn up by an experienced lawyer, preferably before the start of the collaboration. This agreement can include arrangements on decision-making, transfer of shares, dividend policy, and dispute resolution. Possible provisions include:

• A lock-up period of, for example, five years during which shares may not be transferred;
• A mandatory offer arrangement for a director-shareholder upon dismissal, to prevent this person from remaining part of the general meeting after dismissal.

2. Ensure careful documentation of agreements

By recording work arrangements, task distribution, and decisions, much discussion about oral agreements afterward can be avoided. It is also wise to clearly document the different responsibilities of the shareholders so that all parties know what is expected of them.

3. Draw up a good exit arrangement

It is advisable to establish an exit arrangement at the start of the company. This can be included in the shareholders’ agreement but does not have to be. By drafting such an arrangement, it is clear to the various shareholders what happens if someone leaves due to illness, death, or another reason. This exit arrangement can include agreements on:

• The valuation method of the shares;
• A purchase obligation for the remaining shareholders;
• The possibility of sale to a third party. 

Do you have questions about preventing shareholder disputes? Then contact Manon Hoekstra, Corporate Law attorney. 

This blog is part of a two-part series on shareholder disputes. The second part will focus on the various legal options for resolving shareholder disputes.

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