Conflicts between shareholders can paralyse a company. We outline the legal instruments available and how escalation can be avoided.
When Cooperation Breaks Down
Shareholder disputes are among the most frequent and destructive conflicts in corporate life. What begins as a minor disagreement can quickly escalate into an existential threat that paralyses the entire company.
Typical Causes of Conflict
The causes of shareholder disputes are manifold:
- Diverging corporate strategies: Shareholders hold different views on the company's future direction.
- Profit distribution: Disagreements over dividend policy, particularly where shareholders have differing financial circumstances.
- Information deficits: Minority shareholders feel sidelined or inadequately informed.
- Breaches of fiduciary duty: Allegations of hidden profit distributions, breaches of non-compete obligations, or disloyalty.
- Generational conflicts: Different perspectives between founders and successors.
Legal Instruments in Shareholder Disputes
Information and Inspection Rights
Every shareholder has the right under § 51a GmbHG to prompt information and access to the company's books. This right may only be refused under the narrow conditions of § 51a Abs. 2 GmbHG. In disputed cases, the right to information can be enforced through interim injunction proceedings.
Removal of the Managing Director
If a shareholder who is also the managing director is at the centre of the conflict, their removal as managing director may be effected by shareholder resolution pursuant to § 38 GmbHG. It must be considered whether the articles of association impose special requirements or whether cause within the meaning of § 38 Abs. 2 GmbHG is required.
Redemption of Shares
The redemption (Amortisation) of shares pursuant to § 34 GmbHG is a far-reaching instrument that removes the affected shareholder from the company. The prerequisites must be stipulated in the articles of association, and cause must exist.
Exclusion Action
Where no contractual redemption provision exists, a shareholder may be excluded from the company by exclusion action. Case law requires cause in the person of the shareholder to be excluded, rendering continuation of the company with that shareholder intolerable.
Dissolution Action
As a last resort, the dissolution action pursuant to § 61 GmbHG is available. It may be considered where the corporate purpose can no longer be achieved or other compelling reasons exist.
Out-of-Court Resolution Paths
Mediation
Mediation has established itself as an effective instrument for resolving shareholder disputes. A neutral mediator supports the parties in finding an interest-based solution of their own. Its advantages include confidentiality, speed, and the possibility of preserving the business relationship.
Arbitration
Many articles of association contain arbitration clauses that refer disputes to an arbitral tribunal. Arbitration proceedings offer the advantages of confidentiality, the expertise of the arbitrators, and typically faster decision-making.
Negotiated Solution: Share Transfer
Often, an amicable separation of the shareholders is the best course of action. In this scenario, one shareholder acquires the other's shares. The central question is then the valuation of the shares.
Preventive Measures
The best shareholder dispute is the one that never arises. The following measures help prevent conflicts:
- Clear articles of association: Provisions governing profit distribution, decision-making authority, non-compete obligations, and succession.
- Drag-along and tag-along clauses: For cases of desired shareholder changes.
- Shoot-out clauses: Russian Roulette or Texas Shoot-Out mechanisms as separation options.
- Regular shareholders' meetings: Institutionalised communication prevents conflicts.
Conclusion
Shareholder disputes require swift and considered action. The choice of the right instrument depends on the specific circumstances. Early legal advice can help avoid escalation and achieve commercially sensible solutions.
