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Fights Between Shareholders

Queenstown Law

At Queenstown Law we have had to defuse many fights between shareholders over the years.

 

There are times when conditions are ripe for such disputes. For example:

 

  • when there isn’t enough money slushing around and the business is struggling

  • when the shareholders themselves are not on the same wavelength because they haven’t agreed on a plan or goals

  • when one shareholder is contributing way more than the other

  • when one of them has got personal problems to deal with – maybe their relationship with their partner is causing grief

 

It often boils down to two types of shareholder fights that we see.

 

Firstly there are fights where the minority shareholder feels he is being ignored. Often the company was formed by the majority shareholder. The business is his baby, and he made it the success that it is today, in his mind anyway.

 

Somewhere along the way the minority shareholder came on board. Maybe it was part of the majority shareholder’s succession plan or to keep a good staff member on board. Maybe it was some special expertise or connections (or money) that the majority shareholder thought the new guy could bring to the table. But to all intents and purposes the majority shareholder still sees the business as his. The new shareholder is there at his invitation. So the main man never tells him what’s going on. Maybe they put a shareholders agreement in place, maybe not.

 

The minority shareholder gets frustrated. He wants to help drive the business forward but he can’t. The main man won’t let him. So he becomes demotivated. The main man sees no benefit in having the little guy there anymore. Tension cuts the air daily until one day it eventually cracks right open.

 

 

The second type of shareholder fight is typically between two guys (yes, usually guys) who come up with a brainwave that is going to make them millions. They are great mates – so great in fact that they declare at the start “we’re great mates, we trust each other. So no, we don’t need a shareholders agreement. If anything bad happens we’ll sort it out.”

 

They’re going to get rich together!

 

Scan forward a couple of years and the scenario is different. Business isn’t going as well as they expected. They’ve been loose with their record keeping and have no idea how they are tracking. They each feel that they’re doing all the work and the other guy is doing nothing.

 

Trust is gone. And they can’t stand being in the same room as each other.

 

 

Disputes in both of these cases are so easily avoidable.

 

For a start, good communication at the outset would help. We always tell businesspeople to put a shareholders agreement in place. If it is done properly, and we get them thinking about all the important things, it is worth its weight in gold. But, particularly for the second type of fight above, unfortunately some guys let their own ego get in the road. The meagre fee they would have to pay us to record things is seen as surplus to requirements. Its hard to get it through sometimes that we make a lot more in fees out of the fights than we ever do from drafting shareholders agreements, but that is usually beside the point at the time.

 

We think it would also be an excellent idea to touch base with us at least once a year, and more if there are big things happening for the company, just so we can grill them on how they are getting on and how the company is running. Is there any tension in the air. Because if there is we’re going to defuse that now. Treat us like an agony aunt, if you like. That is money well spent for those who do it.

 

Sometimes we have to make it happen. Often what happens is that, quietly, one of the shareholders will catch us for a confidential chat. It becomes clear that there are frustrations brewing. He doesn’t know how to raise it with the other guy, and doesn’t want the aggravation.

 

So, in a respectful but reasonably clinical way, our job is to get the issues onto the table and solve them without the relationship going south. It’s not always easy because the legal ins and outs sometimes make way for anger and egos and noses out of joint. Both think they are all right and the other is all wrong. Mostly they’re both a bit right and a bit wrong, and compromise is going to be needed.

 

Can it happen? It depends. I remember one such stouch when we had a deal and suggested it to our client. It was going to take some compromise on both sides but the outcome was way better than the alternative. He just looked at me and said “your not acting in my best interests are you”. I guess some people just can’t be helped.

 

Overall though, this problem solving approach has saved businesses from self destruction.

 

If you want a confidential chat about any of this please email us on russell@queenstownlaw.co.nz or claire@queenstownlaw.co.nz. Or call us on 03-4500000.


Happy fighting in the meantime!

 

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