Shareholder disputes: resolving and preventing

As an entrepreneur, you don’t want to waste energy on protracted shareholder conflicts. You want clarity, speed and a route to move forward together—or to part ways respectfully. In this article, you can read how to prevent and resolve deadlocks with smart agreements, clear escalation and fair exit mechanisms. We translate complex legal frameworks into practical choices.

Why shareholder disputes often get stuck

In practice, we see different types of shareholder conflicts. For example, shareholder conflicts that have arisen because parties have fallen out on a personal or financial level. However, this article will focus in particular on shareholder conflicts that arise from an awkward structure (without prior consideration of how to break through such a conflict).

Examples of an awkward structure include 50/50 ratios without a tie-breaker, veto rights on overly broad topics, or unclear information provision. If crucial decisions—such as major investments, the appointment of directors or changes in course—are repeatedly blocked, an administrative impasse arises. The damage is often predictable: delayed deals, unrest in the team, customers leaving and value destruction. The good news is that this can be prevented with a well-thought-out shareholders’ agreement and arrangements that can break deadlocks.

The core of a robust solution

A working approach starts with three pillars: clear scope, an escalation ladder with deadlines, and a fair exit. First, you determine which decisions are “crucial” and what majority is required for them. Then you arrange what happens if that majority is not achieved: from operational consultation, to management level, to mediation and, if necessary, a binding step or an exit mechanism. Finally, you ensure information parity, proof of financing and fair play, so that the process is not abused and each party can participate on an equal footing.

Prevent deadlocks with smart decision-making

Increasing the majority (e.g. to 67% or 75%) may be wise, provided you install a backup: if a decision is not taken after two meetings, the escalation process starts automatically. In specific cases, a “golden vote” or rotation vote can offer a solution, but use it sparingly and in a limited way, with safeguards against abuse. It is crucial that information is complete and timely on both sides. Think of a standard data package with key financial and operational figures, NDAs and sanctions against obstruction.

Escalate without escalating

The best escalation ladder is fast, predictable and de-escalating. Start with a brief consultation at the operational level: a few working days to share data, test assumptions and explore alternatives. If you cannot reach an agreement, proceed to the management level or external mediation within a fixed period. Keep the clock ticking: those who remain silent implicitly agree to the next step. If the conflict persists, opt for binding advice, arbitration or a pre-agreed exit.

Exit options if further cooperation is no longer an option

There is no one-size-fits-all solution. The right mechanism depends on the relationship between the parties, information parity and financial strength. Below are a number of examples that occur in practice:

• Russian roulette: quick and simple. One party offers a price per share; the other chooses to sell or buy at the same price. This forces fair pricing, but requires proof of funding and safeguards (such as a cooling-off period and floors/ceilings) to prevent pressure on the weaker party.

• Texas shoot-out: both parties submit a secret bid; the highest bidder buys out the other. Competitive and symmetrical, but requires liquidity and strict rules against “junk bids”. An escrow and financing statement provide certainty.

• Buy-sell with independent valuation: an external valuator determines the price based on a transparent method (e.g. DCF and multiples, debt-free cash-free). This is fairer when the parties are unequal, although it costs time and money. Clear assumptions and a reference date prevent discussions.

• Put/Call on triggers: predetermined events—such as a prolonged deadlock, serious breach of contract or change of control—activate purchase or sale rights. Predictable and less game-playing, provided the triggers are clearly defined.

In all variants, a staggered payment (vendor loan, earn-out) and security via, for example, a bank guarantee or pledge on shares helps. This ensures the continuity of the business, even when liquidity is tight.

Fair valuation without discussion

Choose a method that reflects your business and establish it in advance. This could be a specific methodology for determining value. It could also be the method by which an independent expert is appointed to determine the value of the company.

Making agreements during exit

An exit process is intense. If the impasse threatens business operations, a temporary director or monitor can safeguard continuity. It is best to make clear agreements about access to certain information and what steps will be taken towards an exit. If there are ambiguities about the process or if parties disagree, this can in itself lead to conflict.

It is also important to make clear agreements about the relationship clause and non-competition clause during an exit.

Is this compatible with Dutch law?

Yes, provided it is carefully drafted. A shareholders’ agreement operates alongside the articles of association; ensure that decision-making procedures and quorums are consistent. Take into account mandatory company law and the general standard of reasonableness and fairness (Section 2:8 of the Dutch Civil Code). In the event of excesses, the court or the Enterprise Chamber may intervene.

Questions

Do you have any questions about this article or about corporate law? Please feel free to contact one of our solicitors by email, telephone or by filling in the contact form.