Shareholder and partnership disputes
A minority shareholder is not powerless. The remedy for unfair prejudice is an order that your shares be bought at a fair value, and the prospect of one changes most negotiations.
Unfair prejudice
A petition is available where a company’s affairs are being conducted in a manner unfairly prejudicial to the interests of some shareholders.
What that covers in practice: exclusion from management in a company where you had a legitimate expectation of involvement; denial of information — refusing accounts, minutes and access; dilution of your holding through issues you were not properly offered; diversion of business or opportunities to another vehicle; excessive remuneration paid to those in control, which functions as a distribution you do not share in; and a persistent refusal to pay dividends while those in control extract value by salary.
Quasi-partnership
The concept that decides many of these cases.
Where a company was formed on the basis of a personal relationship involving mutual confidence, with an understanding that all or some shareholders would participate in management, and with restrictions on transferring shares, the court can look beyond the strict legal position to the understanding between the parties.
Other routes
When it is also an employment matter
Almost always, where the shareholder worked in the business.
Someone removed as a director is frequently removed as an employee at the same time. Those are separate relationships ending on separate terms, and a step taken in one can prejudice the other. Resigning as a director to avoid a difficult board meeting can convert you from a good leaver into a bad one under the articles — which may be the difference between market value and nominal value for your shares.
This is the clearest example on the site of why the firm is arranged as it is. A client who instructs a corporate solicitor and an employment solicitor separately pays twice for advice that does not join up.
What we do
Read the whole picture first — articles, shareholders’ agreement, service agreement, partnership deed — before anything is signed or resigned. Establish whether the company is a quasi-partnership, which shapes both liability and valuation. Negotiate an exit dealing with every relationship at once. And petition where negotiation fails.
What it costs
£400 per hour plus VAT with an estimate by stage. Valuation evidence is additional where required.
These are expensive claims and we will give you a realistic view of cost against likely recovery before you commit. Petitions are frequently settled once the position is properly articulated, and a well-prepared letter before action is often the most cost-effective step in the whole matter.
Questions
Questions people ask us
I have been excluded from management. Do I have a claim?
Possibly, particularly if the company is a quasi-partnership and you had a legitimate expectation of involvement. Exclusion from management is the most common basis for an unfair prejudice petition.
Will my shares be valued with a minority discount?
Not necessarily. Where a shareholder has been unfairly excluded from a quasi-partnership, the court frequently orders a pro rata valuation without discount. It is usually the most valuable single issue in the case.
There is nothing in writing. Does that matter?
Less than you might think. Quasi-partnership depends on the understanding between the parties, which can be established from conduct and contemporaneous documents rather than a formal agreement.
They are paying themselves a large salary instead of dividends. Is that unfair prejudice?
It can be. Excessive remuneration to those in control operates as a distribution the minority does not share in, and it is a recognised basis for a petition.
Should I resign as a director?
Take advice first. It can change your status under the articles, convert you from good leaver to bad leaver, and weaken claims you would otherwise have. It is the most common self-inflicted injury in these matters.
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Start with a conversation
A free 20-minute call. Tell us what has happened and we will tell you whether we can help, what it would involve and roughly what it would cost.
No charge
A free 20-minute call
Tell us what has happened and we will tell you whether we can help, what it would involve and roughly what it would cost. No advice is given on this call and there is no charge for it.
£350 plus VAT
A paid strategy session
One hour with a partner, followed by a written summary of your position and options. For people who want proper advice without instructing a firm yet. Credited in full against your fees if you go on to instruct us.
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