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Case Studies

Browse through our scenarios to learn more about situations you might find yourself in as a shareholder.

Every week we receive many and varied enquiries ranging from a simple ‘thanks for the helpful info on the site’, right through to full-blown cries for urgent help.

It would be wrong to say that any particular type of enquiries are ‘typical’ of what we receive, but it is very rare that we come across any matters that we have not seen and dealt with previously.

There are various common scenarios that we see revolving around issues such as equal partnerships, lost trust, competing businesses, majority shareholders abusing their control and poor business decisions. See what you should do in each of these scenarios below.

In this section

In this section

Case Studies:

  • The Equal Partnership

    A and B go into business together. They form a company, XYZ Ltd and split the shares 50/50. A and B are good friends so they don’t see the need for any shareholders agreement or other documentation recording their understanding or expectations of their roles or plans for XYZ Ltd.

    The business does well but A and B fall out with each other. These fall outs happen for many reasons: there are disagreements around who is working harder and contributing more, the future direction of the business, who is getting more money and benefits from the business and so on. A might even want to push B out of the business entirely (or vice versa).

    These can be tricky situations. Often there isn’t the money available for one party to buy out the other, or it may be that neither A nor B wants to leave the business.

    But an analysis of the company’s constitution and any employment relationships can often point to solutions. Careful manoeuvring can position one or other party in the driving seat. Generally speaking, the most practical outcome is either A or B selling their shares to the other.

  • Lost Trust

    A has a shareholding in XYZ Ltd but it’s less than 50.1% (i.e. - it’s not a controlling shareholding). All the remaining shares in XYZ Ltd are held by B and C.

    A is excluded or marginalised by B and C. This might be by making major decisions without involving A, spending or using company money without any regard for A’s views, or - where A is involved in the day to day running of the business - sacking or removing A from any role within XYZ Ltd.

    For some reason, A’s face no longer fits or A has outlived any usefulness to B and C. In any event, A is left with a shareholding in XYZ Ltd, but no say in what benefits A gets from that shareholding.

    In these scenarios, A can often have a legal claim against B and C. Conversely, B and C will need to tread very carefully if they want to push A to one side without triggering a claim against themselves.

  • The Competing Business

    A and B are in business together as shareholders in XYZ Ltd. However, B also has another business in which A is not involved.

    Unknown to A, and without A’s consent, B is repeatedly using the staff, assets and sometimes even the money of XYZ Ltd to help out his other business.

    A is likely to have a claim against B. That may take the form of A ousting B from the XYZ Ltd business or it may take some other form, such as A using the opportunity to force B to buy his shareholding in XYZ Ltd at full value.

  • Majority Shareholders Abusing Their Control

    A has shares in XYZ Ltd but A isn’t involved in the day to day running of the business.

    The business makes good profits each year but it never declares any dividends. As such, A never sees any material benefit from their shareholding. Instead, the directors and controlling shareholders pay themselves handsomely and well in excess of the market rate.

    Although the level of directors’ pay can be difficult to challenge, where it is in excess of market rate and where profits are being paid out in remuneration rather than dividends, there are grounds on which A would be able to make a claim against the controlling shareholders.

  • Poor Business Decisions

    A controlling shareholder dominates decision making in a company. They don’t take much notice of anyone else’s views and pretty much runs the company as if they were the only shareholder, as if it were ‘their’ company and theirs alone. Many of their decisions prove to be poor business decisions, often costing the company money or causing a loss.

    In these cases, it can be difficult to challenge what amounts to poor decision making by a director(s). The courts are conscious that judges are not experienced in running companies and often have no industry or sector specific knowledge relevant to the company. Courts are very reluctant to second guess business decisions.

    However, that is not the end of the matter since a careful analysis of poor business decisions often reveals areas of wrongdoing where the courts will interfere and provide assistance. These areas may include, for example, illegality involved in ‘cutting corners’ or unlawful business practices such as engaging in or encouraging bribery.