Shareholder disputes are not uncommon and can arise for many reasons. With shareholders often possessing different and conflicting goals, business strategies and ideas concerning the future development of the business, it is not surprising that this is the case.

However, if there is potential for serious and business-disrupting conflict, it is advisable to consult with outside parties to attempt to resolve the disagreements before they fester. Typical reasons for shareholder disputes include the following:

• the dismissal of the managing director,
• the exclusion of a shareholder for a good cause,
• the withdrawal of a shareholder from the company (e.g. through termination) or dissolution,
• the provisional withdrawal of the managing director’s management and power of representation,
• termination of the managing director’s employment contract without notice for a good cause,
• decisions made concerning the company’s annual accounts and profit distributions,
• disputes over shareholders’ rights of information and control,
• incomplete, improper or unsuitable partnership agreements.

Resolving disputes early through negotiation and mediation provides the best chance of reaching a preferable solution.

However, more serious disputes may not be resolved quickly and can have significant consequences. In the event of more serious disagreements, German corporate law provides for the following measures in such shareholder disputes:

• The company can withdraw the shares of the shareholders concerned,
• The shareholder or managing director can be dismissed,
• One or more of the shareholders involved may be excluded from the company.

These are some of the solutions allowed for under German corporate law. However, external legal advice and expert examination of the issues are recommended before pursuing such resolutions.

Removing a director can be pursued in cases where the director has shown themselves unable to run the business reliably. There should be a good cause for this view relating to actions such as bribery, manipulation of the balance sheet, fraud etc. Similarly, the exclusion of a shareholder can also be pursued due to such activity.

Withdrawing shares from a shareholder can be pursued if grounds are provided under the company’s Articles of Association. In this case, the standard for withdrawing shares is not as high as removing a managing director or excluding a shareholder.

Still, if the decision is made to remove shares from specific shareholders, they have the power to challenge the company’s decision legally. However, if no grounds are provided under the Articles of Association, the company can pursue an action for exclusion by the competent court.

Shareholders who have been excluded or have withdrawn their shares should consult professional legal counsel concerning severance payments and ensure their legal rights are protected.

Arbitration presents itself as an often more cost-efficient manner of resolving shareholder disputes. There are many advantages of arbitration as a method of conflict resolution, such as it is time-saving compared to often drawn-out legal conflicts, and the parties involved have some degree of control over arbitration rules.

Arbitration proceedings are private and, therefore, confidential, preventing details of the conflict from entering the public domain. Additionally, arbitrators often consist of experts in the field; therefore, the parties are aware that the person overseeing the dispute has a keen understanding of business. However, arbitration is usually binding and without recourse to appeal.

The competent Higher Regional Court (OLG) can set aside an arbitration decision in exceptional cases.

To begin arbitration proceedings in Germany, the parties should be aware that the arbitration agreement needs to follow a formally valid manner (§§ 1031, 1066 ZPO).

This agreement should contain unambiguous provisions allowing transfer from the state court to an arbitral tribunal. Furthermore, this agreement needs to be in place at the time of the arbitration proceedings.

Don’t hesitate to contact our lawyers directly for further advice or support with available arbitration solutions. Our team advises parties in such disputes but can also oversee the arbitration procedure.

Legal advice should be obtained concerning the dispute resolution mechanism as an in-court dispute may lead to further conflict with no real “winners”.

However, deliberate damage to the company by certain shareholders, abuse of power, breach of non-competitive clauses, engaging in fraudulent activity and displaying conduct damaging to the company’s reputation are some of the grounds to bring a dispute to court.

Severe breaches of duty by shareholders can lead to that shareholder being excluded from the company itself. Tailor-made agreements in the company’s formation will ensure that such a clause for shareholder exclusion for a good cause is provided.

However, without such a clause, parties should consider resolving the dispute in court in such events. Legal action will also act as a deterrent for other elements within the company from such activity.

Shareholders within a company may also seek to protect their legal rights due to disputes concerning shareholder resolutions. Shareholder resolutions can be fraught with difficulties concerning voting rights, tied votes, voting permissions and prohibitions and more.

Should the voting mechanism be considered compromised, or if your shareholding rights have been reduced or if shares have been withdrawn in a disputable manner, it is vital to consult with a legal professional concerning actions to be taken. Challenging the action promptly is crucial to protecting your rights and claiming compensation.

Other company disputes that can also result in court appearances concern the activities of company directors and management. Managing directors can be dismissed with a good cause in bribery, fraudulent behaviour, and tax evasion, among other grounds. Our German business lawyers advise both companies and managing directors on such matters.

Shareholder disputes and disagreements concerning a company’s management are serious issues, and expert legal advice is required in such cases.

Our dedicated German corporate law practice group combines their in-depth knowledge of German law and corporate structures with industry-specific insight. Whether the dispute involves those involved in larger limited liability companies (such as AGs or GmbHs) or partner disputes concerning those in partnership models such as GbR, KG, GmbH & Co. KG and OHGs, our lawyers will provide you with expert representation, thorough preparation and deep analysis of the legal options available to you.

We advise managing directors, companies and individual shareholders throughout all stages of shareholder disputes. Our full-service legal model ensures that our experts will examine your case from every angle. Our range of specialists and dedicated teams across legal fields ensures that particular synergies are often created to pursue suitable legal solutions.