Shareholder and Boardroom Disputes: How to Protect Yourself if you find Yourself on the Outside

Finding yourself on the outside of a company that you have helped to establish and nurture can be an incredibly stressful experience. It may also be very challenging financially.

There are important elements to consider when dealing with a dispute, least of all are the legal issues. These may include:

  • being suspended or dismissed as an employee, often on spurious grounds

  • the remaining directors/shareholders taking steps to remove you as a director of the company

  • the other shareholders or the company wanting to buy your shares

  • being left with limited employment options due to restrictive covenants in either your employment contract or shareholders’ agreement

  • being asked to immediately repay overdrawn director’s loans

Dealing with the above issues can be daunting, stressful and also expensive. In addition, shareholder disputes are often highly acrimonious.

What steps can you take to protect yourself?

  • Try to negotiate – a negotiated settlement will almost always be best for all concerned in the long run

  • Take legal advice from an experienced lawyer at an early stage - never assume anything when it comes to legal issues; make sure that you understand your legal position before making any future plans, particularly when you are subject to restrictive covenants

  • If you are taking steps to plan for the future, be careful that they cannot be used against you at a later date, e.g. by setting up a competing company

  • Check your home and other insurance policies for any legal expenses cover - shareholder disputes are expensive so insurance cover is invaluable

  • Be careful about who you talk to - once you have left, your former colleagues may be cajoled into giving evidence against you

  • Keep a note of key meetings and telephone calls - written evidence is always more persuasive

  • Keep copies of relevant documents including board papers - remember, you may well be unable to access your emails at a later date

  • Make sure that you retain copies of your employment contract, shareholders’ agreement and any other key contracts - your lawyers will need sight of these at an early stage

  • Be careful about conversations and meetings with potential new employers and business partners - you may be accused of breaching restrictive covenants

  • Always take legal and tax advice before agreeing to any exit deal

  • You may have a claim against the company for unfair dismissal and also your co-shareholders for “unfair prejudice” - your lawyer will be able to advise on this