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Is your divorce affecting your business?

Q. I own 33% of a business of which the remaining is shared between a husband and wife. But now they are getting divorced and it is beginning to cause serious problems in terms of making management decisions and communicating with staff as they no longer wish to see each other. However, the business is heading for a good year so none of them want to sell me their shares. Is there anything I can do to force a sale in the interest of the business?

A. Warring shareholders have the ability to destroy a business by losing focus, wasting time and energy on trivial or personal matters. In your case, everyone stands to lose built-up value in the shares unless the dispute is resolved quickly.

Before taking any drastic measures, try the straightforward route of having a frank and honest conversation with both parties. I wouldn’t be surprised if one of them agrees to sell you their share of the business.

If yours is a private company, the answer is likely to be found in the terms of the company’s articles of association – its constitution – and in any shareholders’ agreement which might be in place. If your firm has been formed as a partnership or other common business structure, I’d similarly expect to find a constitutional document in one form or another. Have a thorough read of these documents and see whether there are any provisions which might work in your favour: a clause which could force the sale of a minority interest. If so, it will outline, for instance, how to determine the price of the shares, terms and conditions for forcing a sale along with a timetable for the share transfer.

If there is no help to be found in dialogue, the company’s constitution or other legal agreements, you should seek help from a lawyer who specialises in commercial dispute resolution. Once the dust has settled, a well drafted shareholders’ agreement which covers all relevant concerns including how to handle shareholder fallouts might not be a bad investment.

This article was originally published on the Financial Times website.

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Dated: 17/09/2012

Author: Greg Cox

Are share incentives an option for my business?

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