If a dispute among shareholders cannot be resolved, it is in the interests of all parties involved to come to a solution that does not jeopardize the company’s existence.
While shareholders are usually in agreement about the strategy and objectives of the business when the company is being established, this harmony can give way to differences of opinion between the shareholders as the years go by, e.g. regarding the company’s future direction or filling the position of managing director. If both sides remain stubborn and the dispute cannot be resolved, it becomes necessary to find suitable solutions for the benefit of the company.
Our experience at the commercial law firm GRP Rainer Rechtsanwälte shows that two options typically present themselves as a way of ending a shareholder dispute: redemption of a shareholder’s shares or removal of the managing director. A company’s central decision-making body is the general meeting of the shareholders, and it is here that shareholders’ voting rights play a pivotal role.
Removing a shareholder-managing director can prove problematic, since he or she is also entitled to vote and may thus be able to prevent his or her removal. To prevent him or her from exercising their right to vote, the removal needs to proceed on the basis of good cause or the shareholder-managing director must be clearly incapable of properly conducting business. One example of good cause justifying removal is a gross dereliction of duty by the managing director, for instance in the form of balance sheet manipulation, accepting bribes, tax evasion, unauthorized use or disposal of company assets, or persistent disregard of instructions from the shareholders. Mere mistrust of the shareholder-managing director does not justify loss of his or her voting rights.
Redemption of a shareholder’s shares requires objective justification based on grounds incorporated into the articles of association. Examples of relevant grounds include the shareholder becoming insolvent, compulsory execution being levied against his or her shares, or divesting shares to ineligible persons under the articles of association.
Complex legal regulations need to be observed in the context of a dispute among shareholders. It is equally important not to ignore tax implications. Lawyers who are experienced in the field of company law can serve as competent advisors in trying to find appropriate solutions.