Shareholder Agreements and Partnership Disputes

When starting a business with another party, one element that is often overlooked and that people rarely want to think about is “what happens if relations break down?”

At the outset it is strongly advisable to put a shareholders agreement of partnership agreement in place which clearly sets out not only the rights and obligations of each party but also addresses the mechanisms to resolve disputes should they arise.

One of the key benefits of a shareholders agreement in particular is that the affairs of a company can be regulated privately without the public observation that can attach to articles of association.

The most common uses of a shareholders agreement are as follows:

Setting out the rights of shareholders;

Managing how transfer of shares is to be dealt with;

Preventing shareholders from blocking business sales;

Controlling dilution of shares;

Controlling the mechanisms for resolving disputes among shareholders; and

Giving minority shareholders enhanced protection.

For businesses that are unincorporated or for LLPs, putting a good partnership agreement in place at the very inception of the business can provide many of the same benefits as a shareholders agreement. For those that don’t want to be tied to the provisions contained within the Partnership Act, it is vital that an encompassing agreement is drawn up and put in place.

With this being said, disputes can still arise and it may be necessary to either formally litigate or adopt an alternative dispute resolution such as mediation.

What We Do

MKB Law recognise that disputes can be very sensitive between business partners and the highest level of confidentiality must apply. The commercial team have widespread knowledge in this area and can take the time to ensure that disputes are resolved effectively, as swiftly as possible and with your best interests at the forefront. The team have experience in conducting and guiding clients through arbitration proceedings as well as through mediation and settlement negotiations.

The first thing that should be considered in all cases is alternative dispute resolution i.e., resolving the dispute through mediation or negotiation in the first instance without the need for formal legal proceedings. The court will expect to have seen that the parties have made a reasonable attempt to settle.

Litigation is the court method of resolving a dispute where a Judge makes the decision based on the parties’ evidence and the law.

Arbitration is non-court method in which an independent arbitrator is appointed by the parties to make a decision which is usually binding.

Mediation is another non-court method which is more flexible than arbitration. An independent mediator is appointed to help work with both parties in order to negotiate an agreed settlement and way forward.

If a partnership dispute cannot be settled through alternative dispute resolution, the matter can be determined by the court. The cost of such proceedings and length of time they will take will vary largely on the individual facts of the case and the complexity of the case.

The first stage involves the claimant issuing their claim detailing their case at court whilst serving it on the defendant. The defendant will then indicate whether or not they intend to defend the claim. If they intend to defend, they must set out their defence (along with any counterclaim). Court and counsel fees may be payable at this stage and each party will be bound by strict deadlines that they must adhere to. Failure to meet these deadlines may result in orders for costs or in the case being struck out in its entirety. Each party will share discovery with the other (i.e., the documents and evidence that substantiate their case) and a date for trial will be set where both parties can make submissions on the basis of the law and their evidence.

Gordon McElroy
028 9099 3111

Lynsey Henderson
Associate Director
028 9099 3117

Jose Lazaro
028 9099 3114

Shane Colton
Trainee Solicitor
028 9024 2450

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