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Being Left To Run A Family Business
Q. My two brothers and I were left the family business together. We each have equal share holdings and together we are the only directors of the company. Everything went well until recently. We just can’t seem to agree on anything anymore. My brothers want to take steps I just don’t think are right for the business. What can I do?
The day to day control of a company is in the hands of its directors subject to the scrutiny of the shareholders and their power to remove a director if they feel he or she is not acting as they would wish.
Board decisions are made on the basis of a simple majority of the directors and so long as your brothers vote together they will always be able to outvote you there. Voting at shareholders meetings is normally also on a ‘one person, one vote’ basis unless a specific request is made to vote on the basis of each person’s shareholding. Again either way your brothers will be able to outvote you on nearly any issue.
All is not lost however, as the law recognises that these situations may occur and that it would be unfair to leave minority shareholders such as you unable to take any action. If you feel that your brothers are acting in a way that is prejudicial to the company as a whole, for example by entering into contracts that benefit them personally at the company’s expense, you may be able to bring what is known as a derivative action where you bring court proceedings against them in the company’s name. You may also be able to bring a claim against them personally in your capacity as a shareholder.
If the action they are proposing is such that you feel it will damage your interests as a shareholder, you can ask the court to step in on the basis that you are suffering unfair prejudice. The court will consider the claim and has a wide discretion with regard to what orders it can make to remedy the situation. The most common order is that your brothers would be ordered to buy your shares at a rate agreed between you or set by the court. However, it could ultimately order that the company be wound up.
These sorts of disputes are always expensive and usually very emotionally draining. I would suggest that you and your brothers try to come to some amicable arrangement before matters get so bad that court is the only option.
The day to day control of a company is in the hands of its directors subject to the scrutiny of the shareholders and their power to remove a director if they feel he or she is not acting as they would wish.
Board decisions are made on the basis of a simple majority of the directors and so long as your brothers vote together they will always be able to outvote you there. Voting at shareholders meetings is normally also on a ‘one person, one vote’ basis unless a specific request is made to vote on the basis of each person’s shareholding. Again either way your brothers will be able to outvote you on nearly any issue.
All is not lost however, as the law recognises that these situations may occur and that it would be unfair to leave minority shareholders such as you unable to take any action. If you feel that your brothers are acting in a way that is prejudicial to the company as a whole, for example by entering into contracts that benefit them personally at the company’s expense, you may be able to bring what is known as a derivative action where you bring court proceedings against them in the company’s name. You may also be able to bring a claim against them personally in your capacity as a shareholder.
If the action they are proposing is such that you feel it will damage your interests as a shareholder, you can ask the court to step in on the basis that you are suffering unfair prejudice. The court will consider the claim and has a wide discretion with regard to what orders it can make to remedy the situation. The most common order is that your brothers would be ordered to buy your shares at a rate agreed between you or set by the court. However, it could ultimately order that the company be wound up.
These sorts of disputes are always expensive and usually very emotionally draining. I would suggest that you and your brothers try to come to some amicable arrangement before matters get so bad that court is the only option.
We have lawyers who are members of the above organisations.