Facing a Dispute Between Shareholders? What Happens When You Cannot See Eye to Eye
A dispute between shareholders often comes up when there is a serious disagreement about how the business is being run. One shareholder might feel left out of important decisions, concerned about financial transparency, or suspicious of a conflict of interest. These issues can arise between majority and minority shareholders, or even between equal partners who play different roles in the business.
At the root of many disputes is an imbalance in control—when one person has more say in decisions, better access to company finances, or more influence overall. If one shareholder feels ignored or treated unfairly, tensions can quickly grow. That is why early advice from a business lawyer is key, so that potential issues can be spotted and addressed before they escalate.
How a Shareholder’s Agreement Can Help With Dispute Resolution
A shareholder’s agreement is one of the most powerful tools for preventing or resolving a dispute between shareholders. This document outlines how the company should be managed and what each shareholder’s responsibilities and rights are. If a dispute comes up, the agreement can be used to determine whether someone has stepped out of line.
Without this kind of agreement, it is much harder to hold anyone accountable or settle disagreements. A business lawyer can help draft or review a shareholder’s agreement to ensure it protects everyone’s interests and includes clear rules for decision-making, dispute resolution, and exit strategies.
Understanding Shareholder "Exit" Clauses in Ontario
The shareholder’s agreement includes important rules for what happens if someone wants to leave the business or if the business is going to be sold. Three common rules you will often see are "shotgun," "tag along," and "drag along" clauses. They are designed to protect everyone involved, especially if there is a dispute between shareholders or if the owners cannot agree any more.
Shotgun Clause: The "Buy or Be Bought" Rule
Imagine you and a partner own a business, and you cannot agree on its future. A shotgun clause is like a challenge: one of you offers to buy the other's share at a specific price. The other person then has only two choices:
Sell their share to the first person at that exact price.
Buy the first person's share at that same price.
This forces a quick decision and can be a way to break a deadlock when one owner wants out.
Tag-Along Clause: Protecting the Smaller Owners
Think of a tag-along clause as a buddy system for smaller owners. If a big owner decides to sell their part of the business to an outsider, this clause lets the smaller owners "tag along" with that sale. This means they get the chance to sell their shares at the same good price and on the same terms as the big owner, ensuring they are not left behind or stuck with a less valuable investment.
Drag-Along Clause: When the Majority Calls the Shots
A drag-along clause gives the majority owner (or owners) the power to pull everyone else into a sale. If the majority finds a buyer for the entire business, this clause allows them to force the minority owners to sell their shares too. This is useful because a buyer often wants to purchase 100% of a company, and this clause prevents a small group of owners from blocking a full sale.
A business lawyer can help you structure the shareholder agreement to ensure that the exit clause is clearly drafted and that it is used appropriately when triggered.
What If a Dispute Between Shareholders Means Someone Wants Out?
Sometimes, disputes get to the point where shareholders want to part ways. There are a few ways to go about this—one shareholder might buy out the other, someone from outside the business might step in as a buyer, or the whole business might be sold.
The process can be tricky. Valuing the business fairly and agreeing on how to sell the shares can lead to more disagreements if not clearly laid out in advance. A well-prepared shareholders agreement, created with help from a lawyer, can set out the process for buyouts and appraisals, making a difficult situation more manageable.
Figuring Out a Fair Price in a Dispute Between Shareholders
To avoid arguments over what the shares are worth, shareholders can agree to bring in a professional valuator. Sometimes one appraiser is enough while in other cases each side might bring their own and then try to agree based on those numbers. A good valuation process is key to making sure everyone feels the outcome is fair. A lawyer can help coordinate this process and ensure both parties follow proper valuation methods.
What If Selling the Whole Business Is the Only Option?
In some situations, selling the entire company might be the only way forward although that does not necessarily solve everything. There can still be disputes over how the sale proceeds are divided, especially if one shareholder believes the other acted improperly before or during the sale. A business lawyer with litigation experience can help resolve those lingering issues and ensure the outcome is legally sound.
When Legal Action Becomes Necessary in a Dispute Between Shareholders
If negotiations break down and the shareholders cannot agree, one or more of them might turn to litigation. One common legal tool in these cases is the “oppression remedy.” This allows a shareholder to take legal action if they believe they have been treated unfairly by the others.
To succeed, the shareholder needs to prove that their reasonable expectations were ignored or harmed by being left out of major decisions, denied access to financial records, or seeing company funds misused. A litigation lawyer can help gather the right evidence and build a strong case if court becomes the only path forward.
What the Courts Can Do When Shareholders Disagree
If a court or arbitrator agrees that there has been unfair treatment, they can order a wide range of solutions. These can include giving one shareholder access to financial records, forcing a buyout, changing who is on the board of directors, or in extreme cases, dissolving the company altogether.
Courts can also award financial compensation or require the business to be run differently in the future. Working with an experienced litigator is key in this part of the process to ensure that the appropriate legal remedies are executed fairly.
Are You Facing a Dispute Between Shareholders? Do Not Hesitate, Contact Gionet Fairley Wood Today for Experienced Litigation
Shareholder disputes are often complicated and emotionally charged because they involve business decisions, legal rights, and sometimes personal relationships. The best outcomes usually come from resolving issues early before going to court becomes the only option. When legal action is necessary, working with a knowledgeable business lawyer and litigator can make all the difference.
The lawyers at Gionet Fairley Wood LLP offer experienced representation in Simcoe County, Muskoka, Grey Highlands, and the surrounding area. We can help assess the situation, protect your rights, and find the most practical and cost-effective way to move forward. Contact us through our website, or call us today at 705-468-1088.
***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.