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Disputes among shareholders are more common than not.  Differences between individuals can arise due to a number of reasons, from clashing personalities, to discord over company strategy and many more.  Charged with emotion, shareholder exit discussions are often characterized by one party seeking to gain inappropriate personal advantage, attempts to marginalize and sometimes punish the other party. 

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Relief measures are available under South African company law but are draconian by some standards.  Oppression measures available include forcing one shareholder to purchase the shares of another based on a value determined on a date prior to the offensive conduct taking place.  There is also precedent for one shareholder being forced to purchase the shares of another, at a value determined on a date prior to the dispute arising, for a business no longer in existence.  On a personal level, implementing such measures is sure to destroy any hope of a relationship being salvaged between the parties concerned.

Here are thoughts and tips on how to find value in a shareholder dispute situation:
  • The desire to find a speedy solution will generally translate to a shorter deal cycle i.e. concluding a share sale with a new buyer or existing shareholders is likely to be a more swift process than following the litigious alternative.
  • Strategic investors should be targeted as the departure of one shareholder among one or several translates to business continuity and lower risk for an incoming investor.
  • The entry of new blood in the investor team can generally only succeed a fair value transaction, meaning a fair deal for the departing shareholder. For remaining shareholders, it avoids the need for any one party to raise capital to purchase the shares of the departing shareholder.
  • Fresh thinking injected into the shareholder family can enormously benefit the business (and its remaining shareholders) through access to previously untapped markets, access to new technologies and operational synergies.

Irrespective of the reasons for the dispute arising among shareholders, the benefits of finding a mutually beneficial exit by far outweigh the financial, emotional and reputational costs of a litigious alternative. 

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