The 5 most common reasons for a directors’ or shareholders’ dispute

Reason 1 - Differences in contributions to the business

After a while, it often happens that one director or group of directors ends up contributing more than the others. Often, one ends up bringing in more work, or provides more of the finance needed than others.

This is perhaps the most common reason for a dispute as the director who contributes the most starts to resent the other directors who are drawing as much as him or her.

The solution: define the roles at the outset and what is expected from each director; see if you can renegotiate salaries or introduce a bonus arrangement for the director who contributes more; go your separate ways and negotiate the exit of some of the director-shareholders.

Reason 2 - Change of skills needed as business grows

The skills or finance that a business needs change with time. It is often the case that one director has more business experience and his skills at the start in setting up the company and its systems are invaluable. But, once they’re up and running, those skills no longer seem so important.

Similarly, one director may introduce the funds to get the business going but, as it grows and becomes more profitable, those funds are no longer the main priority.

The solution: the same as for Reason 1 above.

Reason 3 - Financial strain

This was particularly prevalent during the recession where many companies needed to make staff redundant, and this included directors too.

The solution: realise that, when times are bad, even directors may have to go; negotiate a fair solution. For the director who’s made redundant, this may be a blessing in disguise as they can avoid any risk of being made personally liable if the company later becomes insolvent.

Reason 4 - Personality conflicts

As in all walks of life, people need to get on with each other and often personality conflicts arise.

The solution: if you can’t work with your fellow directors, admit this as soon as possible as either you or the other director will need to go: there is no point in continuing in business with someone you can’t get along with. Instead, focus your energy on agreeing an exit plan.

Reason 5 - Breach of duties

Often a director is found to have breached their duties to the company, usually by taken money out of the company without proper authority.

The solution: ask them to pay back what they have wrongfully taken. If they won’t, take legal advice.

Legal Advice

You may need legal advice in any situation where there is a directors’ or shareholders’ dispute. This will enable you to understand your strengths and weaknesses which will enable you to achieve a better outcome. And, if you can’t negotiate a solution yourself, it often helps to have a solicitor to negotiate on your behalf.

Gary Cousins
Business Solicitor

For free advice on this topic please call us on 0845 003 5639.