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Does your company have a shareholders’ agreement?

wooden balance with two large white die on opposite ends representing a shareholder disputeEven among business professionals, a conflict situation can arise between shareholders. Seeking the expert advice of an experienced business law attorney can help you find a solution to a shareholder dispute.

Preparing and signing a shareholders’ agreement is one way to decide how disputes will be resolved within your association, if necessary, in advance.

Reviewing the document to determine the rights and obligations of the parties involved – especially in the event of a dispute – is, therefore, a priority. Unfortunately, too many corporations still do not have an agreement or have not had it adjusted as they have evolved.

Before going to court to settle a shareholder dispute, the parties involved must attempt to negotiate an amicable solution before taking legal action.

By consulting a lawyer specializing in shareholder disputes, he or she can serve as a mediator.

What can a shareholder do in the event of a dispute?

If the shareholder is convinced that the company of which he or she is a member has committed dishonest acts, fraud or has been unfair to him or her, and that no negotiation is possible, he or she may ask the court to conduct an investigation. He also has the right to obtain any information that the company is required to give him.

For example, he can ask to have access to the financial statements and books of the company. The court may appoint an inspector to visit the premises, require access to the relevant documents, hold a hearing and make a report to the applicant. A decision will then be made by the Court. A shareholder who wishes to exercise this recourse is well advised to retain the services of a lawyer specializing in shareholder disputes.

Litigation in the event of abuse of power or oppression

The dispute in question may concern a situation known as “oppression” when the corporation or one of its shareholders takes unfair or abusive action against another shareholder, and the latter suffers prejudice. Again, negotiation must be attempted before submitting the case to the courts.

Once the relevance of the recourse has been recognized, the Court may opt for different solutions. For example, by reviewing the operation of the corporation, asking it to amend its articles of incorporation or by-laws, or to make changes in its administration. It may also order the indemnification of the shareholder who has been wronged and condemns the corporation to pay the costs and fees related to the said action.

The request for dissolution

Although a corporate divorce may seem like an extreme remedy, it may be the right way to settle a dispute between shareholders in certain circumstances.

In particular, when a corporation has been constituted illegally or fraudulently; or when its articles of incorporation contain misleading information or do not comply with the Act. Section 462 S-31.1 also provides that dissolution may be required where a corporation fails – for two consecutive years – to comply with the meeting or by-law provisions of its agreement.

Whatever the situation, it is always best to keep a cool head and not react emotionally. By consulting a lawyer specializing in shareholder disputes, you will be accompanied throughout the process and will obtain the necessary advice to proceed in a reasoned and wise manner.

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