Shareholder disputes

How BC law treats it

The first step is reading the documents: the shareholders agreement, the articles and any employment or loan agreements. A shareholders agreement may provide a buyout mechanism, a shotgun clause or a requirement to mediate or arbitrate. If it requires arbitration, the dispute will usually be heard privately under the Arbitration Act, SBC 2020, c 2, and a court action may be stayed. Where there is no agreed process, the Business Corporations Act, SBC 2002, c 57 (BCBCA) provides court remedies. A shareholder can apply under s. 227 for relief from conduct that is oppressive or unfairly prejudicial, and the court can order a buyout, set aside transactions, appoint or remove directors, or award compensation. With leave of the court under ss. 232 and 233, a shareholder or director can bring a derivative action on the company's behalf, with no minimum shareholding required. In serious cases, such as deadlock in a small company, the court can order the company liquidated under s. 324. Claims for damages are generally subject to the two year basic limitation period under the Limitation Act, SBC 2012, c 13. Shareholders who suspect wrongdoing can also use their statutory right to inspect company records, which often provides the evidence needed to decide whether to sue.

What it means for your business

Shareholder disputes can paralyze a business: decisions stall, key staff leave, banks become nervous and value falls. In closely held BC companies, where shareholders are often also directors and employees, the fight is personal as well as financial. Acting early, gathering records and using any agreed buyout or mediation process usually costs far less than litigation and preserves more of the company's value for everyone. Example: A minority shareholder in a Surrey restaurant group discovers the majority owner has been paying himself large management fees and stopped dividends. She applies under BCBCA s. 227, and the court orders the majority to buy her shares at fair value.

Risks and common mistakes

Starting a lawsuit without checking whether the shareholders agreement requires mediation or arbitration first. Removing a co-founder from the board or payroll without following the articles and the agreement. Withdrawing company funds or records in a dispute, which can itself be oppressive or a breach of duty. Waiting too long to act, so limitation periods or delay weaken the claim. Suing personally for a wrong done to the company, when a derivative action with leave is the proper route.