Shareholder and partnership dispute solicitors in Scotland

Shareholder dispute solicitors who resolve disputes

A shareholder dispute often starts with a disagreement about the direction of the business and grows into a breakdown of trust. They are particularly common in owner-managed companies, where the shareholders are also the directors and work together every day. Left unresolved, a dispute can paralyse decision making, damage relationships with staff, customers and lenders, and reduce the value of everyone’s shares.

Our dispute resolution team works alongside our corporate and commercial lawyers, so we understand both the litigation and the commercial side of the problem. We act for majority and minority shareholders, for directors and shareholders who are in dispute with each other, and for companies caught in the middle. A dispute between shareholders can be about money, control or the future of the business, and our solicitor will give you clear legal advice on your options from the first meeting.

Our aim is always to find the most cost effective way to resolve the dispute, whether that is a negotiated exit, mediation or another form of alternative dispute resolution, or, where it cannot be avoided, commercial litigation in the Scottish courts. We act in corporate disputes of all sizes, from small owner-managed companies to high value disputes, and advise on disputes involving companies, partnerships and LLPs across Scotland from our Glasgow office. As a law firm with both corporate and litigation lawyers, our legal team can give you expert legal advice on resolving disputes at every stage.

Common shareholder disputes and partnership disputes

Our shareholder dispute solicitors regularly advise on commercial disputes involving:

• Deadlock between equal shareholders
• Exclusion of a shareholder from management
• Removal of a director
• Breach of directors’ fiduciary duties
• Dividend policy and directors’ pay
• Share valuations on exit
• Dilution through new share issues
• Breach of a shareholder agreement
• Competing businesses and diverted opportunities
• Access to company information
• Partner exits, expulsion and retirement
• Division of partnership assets and profits

What are the legal rights of shareholders?

The rights of shareholders come from three main sources. The first is the company’s articles of association, which form a contractual relationship between the company and its members. The second is any shareholder agreement, which often contains the most important protections, such as reserved matters, pre-emption rights and leaver provisions. Where there is no agreement in place, a minority shareholder can be in a much weaker position. The third is the Companies Act 2006, which gives shareholders statutory rights that apply whatever the company’s documents say.

The main statutory protections include:

• Unfair prejudiceUnder section 994, a shareholder can apply to court if the company’s affairs are being run in a way that is unfairly prejudicial to their interests. The court has wide powers, and the most common order is that the majority must buy the petitioner’s shares at a fair value.
• Derivative proceedingsIn Scotland, sections 265 to 269 of the Companies Act 2006 allow a shareholder, with the court’s permission, to raise proceedings on behalf of the company against directors who have breached their duties.
• Just and equitable winding upAs a last resort, the court can wind up a company where it is just and equitable to do so, for example where trust between the members of a quasi-partnership company has broken down completely.
• Removing a directorShareholders can remove a director by ordinary resolution, with special notice of 28 days, even if a service contract says otherwise, although the director may be entitled to compensation and weighted voting rights in the articles can affect the outcome.

Partnership dispute solicitors for partners and LLP members

Partnership disputes have their own rules. Unlike in England, a Scottish partnership is a legal person in its own right, separate from the partners. Where there is a written partnership agreement, it will usually decide how disputes, retirements and expulsions are dealt with. Where there is no agreement, the Partnership Act 1890 fills the gaps, and its default rules can produce results the partners did not expect, such as the partnership being dissolved when one partner leaves.

We advise partners and LLP members on exits, the valuation and payment of a departing partner’s share, disputes over drawings and capital, breach of the duty of good faith between partners, and the winding up of a partnership’s affairs.

Avoiding a dispute between shareholders

Many shareholder disputes could have been avoided, or resolved much more cheaply, with the right legal documents. A well drafted shareholder agreement sets out how decisions are made, what happens on deadlock, how shares are valued when someone leaves and how disputes will be resolved. Tailored articles of association and clear service agreements for directors also help.

If you are setting up a company with others, or bringing in a new investor, our corporate solicitors can prepare these documents for you. See our shareholder agreements service.

How we resolve a shareholder dispute: litigation, mediation and other options

Most shareholder and partnership disputes are resolved without a full court hearing. Depending on the circumstances, our dispute solicitors may recommend:

• NegotiationA clear, early statement of your position and what you want to achieve, often leading to an agreed exit or a new shareholders’ agreement.
• MediationA confidential meeting with a neutral mediator, which works well where the parties need to keep running the business together in the meantime.
• ArbitrationSome shareholders’ agreements require disputes to be referred to arbitration, a private and binding process, instead of the courts.
• Expert valuationAn independent accountant values the shares where the parties agree that one should buy out the other but cannot agree the price.
• Court actionAn unfair prejudice petition, a derivative action, an action for breach of a shareholder agreement, or a petition to wind up the company, usually in the Court of Session. Urgent interim orders, such as interdict, can protect the business while the dispute is decided. Appeals can go to the Inner House and, in some cases, the UK Supreme Court.

For a fuller guide, read our article on how shareholder disputes get resolved in Scotland.