It has been nearly two years since the pandemic began its seismic effect on the UK. Whilst the impact on home life has been huge, the impact on business has been no less significant.
I have found that I am receiving more enquiries about internal business fallouts than had been the case prior to March 2020. My colleague Alex Ross and I recently recorded a podcast on shareholder disputes in response to this situation.
There are many ways in which people in business can fall out, or just decide that they are better off going their separate ways. That isn’t new; issues such as financial strains and personality clashes have always been a feature of business. The pandemic may have increased the levels of resentment between directors and shareholders in slightly different ways and brought other tensions to the fore. The pressure of keeping the business afloat might for example be leading to issues where business owners start muttering darkly about their colleagues not pulling their weight.
If you are a shareholder in a Limited Company and you decide you no longer want to be part of the business, how easy is it to exit the business with minimum fuss? A lot depends on whether you already have an agreement in place (typically a Shareholders Agreement) which allows for your share in the business to be purchased by the other shareholders in defined circumstances.
If there is no such agreement in place, then there may be trouble ahead. The truth is that many businesses do not think they need a Shareholders Agreement; the shareholders aren’t going to fall out, so why spend the money on one?
In most small private companies, anyone holding a shareholding of 50 per cent or less in the business needs to be realistic about how valuable their shareholding is. Another problematic factor is that, by the time a shareholder has decided they want out of the business, relations with other shareholders may well have deteriorated.
Trying to force a purchase of shares, or even a winding up of the company, means entering litigation that is frequently lengthy, expensive and bitter. Not only is there an emotional impact on the people involved, but costs will end up being an extremely significant part of the financial framework of the case.
My advice to any Limited Company and its shareholders is to make sure that they have a well drafted Settlement Agreement in place to deal with the eventuality where a shareholder wants to sell their shares. Shareholders need to be realistic about what their shareholding is worth and to try to resolve issues as amicably as possible before an acrimonious and expensive dispute blows up.
If you would like to speak to Dax Keeling about cutting ties with a business,
please contact him
on 0114 220 2172 or