Last Updated on December 18, 2022 by Anda Malescu
A shareholders’ agreement governs the relationship between the shareholders of a company and its main purpose is to protect the rights of each shareholder. The shareholders’ agreement also includes provisions regarding to the daily management of the company such as the issuance of shares, assets, and appointment and dismissal of directors. The agreement also specifies the manner in which decisions are made. For example, the shareholders’ agreement can provide that some decisions are made unanimously while others are made by majority vote.
Becoming a shareholder is more than just a financial investment in a company
A shareholder is part owner of a company and as a result is obligated to follow certain rules and act in a specific manner regarding their fellow shareholders. When shareholders fail to perform in the manner provided for in the shareholders’ agreement or corporate bylaws disputes arise and oftentimes end up in state or federal courts.
A breach of the shareholders’ agreement (ie. failure to comply with the terms of the agreement) can occur for a number of reasons and can arise in different circumstances. Shareholders can breach the agreement by either making a decision without the required majority vote or by selling or transferring assets or shares without following the terms set out in the shareholders’ agreement.
Even if the shareholders’ agreement has been breached, the document remains valid. The shareholders who suffered damages because of the breaching shareholder can have a claim for breach of contract against the latter. In this case, the available remedies for them are recovering monetary damages, suspending the offending shareholder’s voting rights, or, if possible, obtaining an injunction. One of the most common ways to prove that the breaching shareholder caused harm is to show that the consequence of his or her acts is a loss and/or devaluation of the non-breaching shareholder’s shares.
The most common remedy for breach of the shareholder’s agreement is an action for damages
The non-breaching shareholders can obtain monetary compensation as a way to redress the injury caused by the breach of the shareholders’ agreement. Another remedy is to annul the consequences of the breach – for example, to cancel the result obtained from failing to comply with the voting requirements laid out in the shareholders’ agreement. If the breach is material, the non-breaching shareholders also have the option to rescind the contract and sign a new one among the non-breaching shareholders.
Nonetheless, when confronted with a breach of the shareholders’ agreement, the shareholders must act promptly to resolve the situation. When disagreements between shareholders are not resolved quickly and efficiently, they can harm the relations and damage the future of the business. A more amicable manner to solve the problem is a settlement agreement between the shareholders. The shareholders can execute a written agreement that would be strictly enforceable against the breaching shareholder. Therefore, under the direction of an experienced lawyer, the non-breaching shareholders can negotiate with the breaching shareholder an arrangement that would set a fair and equitable solution.
Contact us or schedule a consultation with your business attorney in Miami, Florida USA to help you understand the consequences of breach of the shareholders’ agreement and protect your shareholder rights.
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