A shareholder dispute can have major consequences for the continuity of a business.
When shareholders fundamentally disagree about the direction of the company, this can lead to indecision,
financial loss and escalation of the conflict. In this article you will read what a
shareholder dispute exactly entails, which legal options exist and how you as
a shareholder or entrepreneur can act effectively.
What is a shareholder dispute?
Of a shareholder dispute occurs when shareholders within a private limited company (BV) or public limited company (NV) come into conflict
over, for example, policy, profit distribution, management or control. This type of dispute is common in
family businesses, joint ventures, and companies with multiple equal shareholders.
Common causes of a shareholder conflict are:
- differences of opinion about business strategy;
- discussions about dividends or profit retention;
- accusations of mismanagement or conflicts of interest;
- conflicts between the board and shareholders;
- a stalemate (deadlock) in 50/50 ratios.
Why is a shareholder dispute so disruptive?
An escalating shareholder dispute can completely paralyze the company. Decisions are not
longer made, investments fail to materialize and the trust between those involved disappears. In serious cases
even the continued existence of the BV or NV is put at risk.
In practice, we see that shareholder disputes often go hand in hand with personal tensions, which makes finding
a business solution more difficult.
Shareholder dispute in a BV or NV: legal step-by-step plan
Step 1: Analysis of articles of association and shareholders’ agreement
In a shareholder dispute it is essential to analyze the articles of association and any
shareholders’ agreement. These often include provisions on voting rights,
dispute resolution mechanisms, transfer restrictions, and exit options.
Step 2: Negotiation or mediation
At an early stage, it can be useful to try to resolve the shareholder conflict amicably,
for example through negotiations or mediation. This can prevent further escalation and protect the company.
Step 3: Legal measures against a co-shareholder
When consultations do not provide a solution, legal action can be considered. Depending on the situation
this may consist of enforcing disclosure of information, annulling resolutions, or initiating a proceeding.
Step 4: Inquiry Proceedings
In serious cases, inquiry proceedings can be initiated. This procedure is intended to have an investigation
conducted into the policy and the state of affairs within the company. This is a powerful tool in a
shareholder dispute.
Step 5: Exit or expulsion of a shareholder
When cooperation has become impossible, the exit or expulsion of a shareholder may be the only
solution. The valuation of the shares plays a crucial role in this.
Deadlock: stalemate between shareholders
A particular form of a shareholder dispute is the deadlock situation. This often occurs
with two shareholders each holding 50% of the shares. Decision-making comes to a complete standstill.
Without a clear deadlock provision, only the court or an exit scenario can offer a solution.
Directors’ liability in shareholder disputes
A shareholder conflict can also lead to questions about directors’ liability. When directors
act contrary to the interests of the company or favor certain shareholders, liability can
arise.
Shareholder dispute involving foreign shareholders
In international companies, a shareholder dispute regularly occurs with foreign
investors. Even then the Dutch court may have jurisdiction, for example when the company is established in the Netherlands.
General information about corporate disputes and shareholder rights can be found at the
Chamber of Commerce.
Common mistakes in shareholder disputes
- waiting too long to seek legal advice;
- allowing emotional escalation to prevail over business interests;
- not preparing an exit strategy;
- litigating without regard for the company;
- no attention to evidence and documentation.
What can Arslan Advocaten do for you?
Arslan Advocaten assists shareholders and entrepreneurs in complex
shareholder disputes. We advise on strategy, negotiations, proceedings and
exit solutions, with an eye for both legal and commercial interests.
Also read more about our expertise in
business law, and
debt collection and payment disputes
Costs and litigation funding in commercial disputes
In commercial disputes, we in principle do not work on a no cure no pay basis. Commercial proceedings
require a careful and strategic approach, whereby clear agreements are made in advance about costs
and litigation.
In certain cases however, it is possible for the case (in effect) on a no cure no pay basis
to be handled. We work with an independent litigation funder who – after assessing the case –
may be willing to finance (part of) the attorney’s fees.
If litigation funding is granted, the attorney’s fees are borne by the litigation funder. For the client
this means that litigating is possible without direct financial risk.
About the author
This article was written by Onur Arslan, lawyer and founder of Arslan Advocaten. He specializes
in business disputes, including shareholder disputes, corporate disputes and international
commercial matters.
Would you like to discuss whether your shareholder dispute can be legally resolved?
