BUSINESS ARTICLES

Commentary on shareholder disputes

Part 1: Determine shareholder disputes that often arise in joint-stock companies

Commentary on shareholder disputes - Part 1: Determine shareholder disputes that often arise in joint-stock companies
Commentary on shareholder disputes - Part 1: Determine shareholder disputes that often arise in joint-stock companies

Up to now, a joint stock company is a type of company that many individuals and organizations aim for when carrying out business activities. That probably comes from the diversity in the methods of management, capital mobilization, and the legal rights of this type of company. It is also considered the most complete operating model with the offset of rights that are not available in other types. However, due to its diversity, this type also hides many collisions and disputes between shareholders or between shareholders and the management board. The following article will analyze some typical disputes that often arise related to shareholders of joint stock companies.

Disputes related to shareholder status

These are conflicts between shareholders when one of them realizes that the other has not fulfilled the original agreements at the time of company establishment – commitments on capital contribution. The Law on Enterprises stipulates a deadline after company establishment for shareholders to complete their obligation related to contributing capital. However, in some cases, some shareholders had not yet contributed or contributed insufficiently within the said timeline, but they still enjoy the same benefits as the appropriate ones. Besides, in practice, not all shareholders have control over the compliance of others, especially small shareholders or foreign shareholders, these are often not much involved in the process of running the business as well as their control of the company’s activities is also limited. Therefore, they do not know the compliance of others on capital contribution unless they can consider the company’s cash flow recorded on relevant documents.

To control, in some cases shareholders will require the company to provide financial statements or accounting books, however, please note that not all these documents express the fact. Therefore, they need to consider building a checking method to determine the fulfillment of all the shareholders on the capital contribution obligation to avoid the consequences of the above circumstance, especially when some shareholders who have not contributed enough capital want to transfer their shares to third parties. In the said case, disputes are inevitable when a shareholder realizes that the other is not complying with the commitments.

Conflicts in the direction of the business

Some of the main contents that are usually discussed at the Annual General Meeting and in some extraordinary meetings by shareholders are business plans, decisions on business orientation as well as issues arising around the implementation of business plans such as finance, human resources, etc. However, not all business plans have been agreed upon by the vast majority of shareholders, especially in a joint stock company with a large number of shareholders.

Conflict with the management board

This type of conflict usually arises in companies with a large number of shareholders and there are only some of them holding management positions. These shareholders are allowed to make business decisions within the scope of the law, but sometimes those decisions are not in accordance with the will of others, such as matters related to the day-to-day operating of the company, salary, bonus, personnel, and operating costs.

Before deciding to cooperate and establish a company as well as manage its activities, the involved parties need to anticipate the potential disagreements and specifically stipulate the method of handling each issue. The more details of the above matters are recognized, the easier the parties to avoid unnecessary conflicts.

Conflicts related to resolutions and decisions of the General Meeting and the Board of Directors

Resolutions and decisions of the General Meeting and the Board of Directors will be considered valid when a certain percentage of consensus from the participants is reached that is stipulated in the company charter. Accordingly, the 100% approval of the shareholders is not a requested condition for the validity of the said documents. It will cause some disagreements for shareholders who vote disapprove or disagree with the said decision, and the way how the Board of Directors handles it may lead to disputes in the operation of the company.

Internal disputes are always the potential in any business model including at the company. Shareholders the preparation for company establishment need to anticipate all potential disputes and record the corresponding handling method in some initial agreement minutes. The said documents with specific and coherent contents will help the parties to have a common voice when any internal disputes arise.

What are thereasons for these disputes to arise? Please read our analysis in Part 2 of this series – Causes of shareholder disputes.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.