Shareholder Breakups: The Corporate Divorce Nobody Wants

Shareholder breakups are ugly. Don’t let anyone sugar-coat it. Even when all precautions are taken.

Forget the gloss of a shareholder agreement and handshakes over a beer. When money, control, and egos collide, business partners can turn on each other faster than you can say “dispute resolution clause”.

AND many breakups do not end there, they end with Supreme Court proceedings…why? Because that is what it takes in many circumstances to resolve the deadlock. Especially, for a minority to get its value.

I’ve seen it play out too many times:

• Best mates go into business, only to discover that friendship doesn’t survive cashflow nightmares.

• Family ventures implode when one sibling decides the other isn’t “pulling their weight.”

• Investors who once smiled for the annual report are suddenly briefing solicitors and barristers and combing through constitutions and shareholder agreements.

And let’s be honest, most shareholder agreements are drafted when the good times roll, they can help - don’t get me wrong but they rarely get tested until things go off the rails. By then, it’s too late.

Why do these breakups get so toxic?

• Power plays - like major vs minor shareholders. One side has the votes, the other has to fight and that often leads to proceedings if the majority won’t meet demands.

• Money fights - valuations in breakups are like divorces, one party thinks the business is worth gold, the other says it’s scrap.

• Personal grudges – Once trust is lost, every email, decision, and meeting becomes a battleground.

The lesson?

It would be nice to say that a shareholder agreement will solve all the problems, but it can’t.

You need a skilled guide to carry you through the process, maybe legal proceedings are required, but almost always steps should be taken ‘1st’ to try resolve the issue in the most direct and cost effective way, but to be effective you need an advocate who understands the law and the financial issues, insurance and cares to understand the personalities at play. Without understanding all the issues a step in the wrong direction can be taken.

At BU Lawyers we are not textbook lawyers, we don’t follow a cookie cutter approach. Put simply we are experts in the fields in which we operate and we take an interest in the personality of your dispute.

If you or someone you know is facing a shareholder dispute, send us the ‘basics’:

• a copy of the directors insurance, shareholder agreement and constitution,
• any valuation of the business and financials,
• the conduct or issues of concern, and

our team will sit down to understand the personality of your dispute.

If you are facing a business breakup you need an expert strategy not a shareholder agreement.

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Tagged as:

• corporate law