Shareholder Disputes in South Africa: How to Navigate Legal Challenges

Shareholder disputes can be a major challenge for businesses in South Africa, impacting growth, profitability, and long-term success. In this article, we'll explore what businesses need to know about shareholder disputes in South Africa, including the common causes of these disputes, the legal remedies available and how businesses can protect themselves from these types of disputes.

What is a Shareholder Dispute?

A shareholder dispute is a disagreement amongst shareholders or between shareholders about the governance of the company or some other essential detail about the company's operations, etc.

What is a Shareholder Director Dispute?

A shareholder director dispute is a disagreement amongst shareholders and the directors of a company about the governance of the company or some other essential detail about the company's operations, etc.

Common Causes of Shareholder Disputes

Shareholder disputes can arise for a variety of reasons, including:

• Differences in management style or strategy

• Disagreements over the allocation of profits or dividends

• Disputes over share ownership or transfer of ownership

• Allegations of breaches of fiduciary duties or misconduct

• Disputes over company policy or direction

• a majority shareholder is blocked by minority shareholder/s from implementing a particular course of action

• a minority shareholder is being pressured by a majority shareholder/s to accept things they do not agree with

• the shareholders are deadlock in respect of a particular course of action

Legal Remedies for Shareholder Disputes

In South Africa, shareholders have several legal remedies available if they are involved in a dispute with other shareholders or the company. These remedies include:

• Litigation: Shareholders can file a lawsuit in court to seek legal redress for their grievances, such as seeking an injunction to stop the company from taking certain actions or seeking damages for losses suffered.

• Alternative dispute resolution: Shareholders can also seek to resolve their disputes through alternative dispute resolution methods, such as mediation or arbitration, which can be faster and less expensive than litigation.

• Buyouts: Shareholders can also seek to sell their shares to the company or other shareholders, either voluntarily or through a forced buyout, as a way to exit the company and resolve their dispute.

Protecting Against Shareholder Disputes

Businesses can take several steps to protect themselves from shareholder disputes, including:

• Clear governance: Businesses should establish clear governance structures, including bylaws and shareholder agreements, that outline the roles and responsibilities of shareholders and the company.

• Communication: Businesses should communicate regularly with their shareholders, including providing regular updates on company performance and inviting feedback on company policies and strategies.

• Early intervention: Businesses should address potential disputes as early as possible, through methods such as mediation or alternative dispute resolution, to prevent the dispute from escalating.

How to Resolve a Shareholder Dispute?

All companies are unique and so too are their respective disputes. As a result, each and every shareholder dispute needs to be considered within the context which it has arisen with due regard to all relevant facts and circumstances e.g. not all companies have a shareholders agreement.

Given the complexities involved in what may seem to be a simply shareholder dispute, each dispute will require different strategies to resolve and it is advisable to seek legal advice early on in the dispute. Successfully resolving a shareholder dispute requires flexibility and an understanding of the dynamics of the business and the factors driving the dispute it.

Conclusion

Shareholder disputes can be a significant challenge for businesses in South Africa, impacting growth and profitability. By understanding the common causes of shareholder disputes, the legal remedies available, and how businesses can protect themselves from these disputes, businesses can take proactive steps to minimize the risk of disputes and ensure long-term success.

Barter McKellar’s corporate attorneys can provide advice and assistance on all aspects of shareholder disputes so that you can get back to business quickly and with minimal financial disruption. If you would like to find out more, contact our offices today to schedule a consultation with one of our specialist corporate law attorneys.