50/50 SHAREHOLDER DISPUTES

Keep a Clear Mind

Can the Dead Lock be Broken?

Introduction

When starting a business with a friend, family member or colleague the fairest and most logical way forward often seems to be setting up a limited liability company, making each of you a director and giving each of you 50% of the shareholding. However, by doing this you may be storing up trouble for the future.

Shareholder dead lock

If a difference of opinion arises between you, this arrangement can cause big problems for the business. If you don’t have terms in a shareholder agreement or the company’s Articles of Association for resolving disputes, a disagreement means that the company is in dead lock and cannot take action until the matter is resolved. If communication breaks down completely, the company cannot act at all. For more on shareholder agreements, please read our page Understanding Shareholder Agreements.

No control over the business

How serious the dispute is depends on what it’s about. If one of you wants to borrow funds to expand, whilst the other wants to trim costs to maximise current income, then that’s serious but potentially solvable without too much disruption. Much more serious is if your fellow shareholder/director is undermining the business; stealing clients, misusing intellectual property owned by you or the company or taking funds out of the business without consent.

No matter what the dispute, if you can’t reach a solution, you have a big problem: You don’t have the power to control the business or get rid of your fellow director/shareholder.

Ways to resolve a 50/50 shareholder dispute

If you face a situation like this, we will give you the information and advice you need to understand what you are entitled to, how the law can help you and guide you through the process of achieving a resolution, so that you can either;

settle the dispute in a way that maintains the relationship or
take control of the company and recover your losses or
leave the company with the share of assets and profits and return on investment you are entitled to.

Most importantly, you will be free to carry on business in the way you think is best, with peace of mind.

If you have an issue with a company with a 50/50 shareholding, please get in touch:

Please use the Let’s Talk button on this page to book a 30 minute Teams call with a specialist litigation solicitor without charge or obligation.

Or contact us by telephone or email. Our details are at the top of the page and HERE.

If you would like more information on 50/50 shareholder disputes please scroll down and continue to read this page.

Keep a Clear Mind

Having a clear mind is essential to resolving disputes. Living in denial; believing bad behaviour is acceptable or that a situation will sort itself out, is common but only makes matters worse.

It is equally important to deal with our own emotions as well as the emotions of others. The short video below provides valuable information to help you deal with these difficult situations.

Can the Dead Lock be Broken?

The problem with a company in which two people are both directors and both 50% shareholders, is that each of you having equal power can mean that no one has power and that’s a big problem.

When most companies are set up, the Model Articles of Association (Model Articles) are adopted as its constitution.

According to the Model Articles (Part 2, section 3) “the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company”.

However, decisions can only be taken if there is a minimum of two directors present and decisions binding the company can only be passed if there is a majority or a unanimous vote in support. As it is impossible to have a majority vote if there are only two voters, the Model Articles can effectively be read as saying that both directors must agree, or else there is no agreement.

Although the Model Articles allow for one of the directors in a directors’ meeting to be appointed as the Chairman and to be granted a casting vote on any decision. It is unlikely that either of you would ever be tempted to simply concede control of their company.

The directors of a company can be overruled by the shareholders. Part 2 section 4 of the Model Articles states, “The shareholders may, by special resolution, direct the directors to take, or refrain from taking, specified action.” A special resolution though, according to s283 of the Companies Act 2006 requires 75% of the shareholders to be passed. So, in a 50/50 company the directors can never be overruled.

Also, neither of you has the power to remove the other as a director. To remove a director,, according to s168 of the Companies Act 2006 requires an ordinary resolution, which needs 51% or more of shareholders to agree.

However, although not easy, there are ways to resolve the dead lock.

Do you need to find a find a way out of a dead lock situation in a 50/50 shareholder company?

Please use the Let’s Talk button on this page to book a 30 minute Teams call with a specialist litigation solicitor without charge or obligation.

Or contact us by telephone or email. Our details are at the top of the page and HERE.

Any questions?

Inevitably, you will have more questions and we welcome all serious enquiries.

Litigation is not something to be undertaken lightly. It does have significant cost and time implications.

Christopher Burgon Solicitors Litigation Specialists

60 Gray’s Inn Road
London
WC1X 8AQ

+44 (0)20 3150 2987
legal@christopherburgon.co.uk

Leave us a review
Privacy policy
Terms & conditions
Complaints procedure
FAQs

Unfair Prejudice Petitions – Resolution for minority shareholders and 50/50 shareholders?

How to use your power in a director/shareholder dispute.

Minority Shareholder Rights

Minority Shareholder Rights – How To Protect Your Interests and Investment

How to use your power in a director/shareholder dispute.

Derivative Claims

A Derivative claim is a court action that allows someone with an interest in a company to bring an action on behalf of that company against a party that has caused a loss to it, such as its directors or other shareholders.

Director and Shareholder Disputes Articles, Slider

Directors duties and Fiduciary duties

Directors can face many different types of claims for personal liability for wrongdoing whilst managing the company. Examples of where a director may incur personal liability include but are not limited to, the following...

Majority Shareholders

How to use your power in a director/shareholder dispute.

50/50 Shareholders

How to break the deadlock.