Greater numbers of Scottish SMEs need to protect themselves against the risks caused by shareholder disputes as financial pressures intensify.
Nicholas Howie, a newly-appointed Partner in our Corporate law team, says family and smaller enterprises in particular would be well advised to ensure they are not at risk by failing to consider such material issues. And they include the potential that those who control the business no longer agree on its future direction - particularly when it comes to dealing with problems.
With pressures caused by the rising costs of doing business and staffing shortages just two of the challenges showing no signs of easing imminently, Nick has warned that financial issues - and others - can lead to shareholder tensions which some businesses are not best equipped to face.
He said: “One of the most challenging questions which can face family-run businesses and SMEs more generally is, what happens when those who own them fall out?
“Addressing this ‘what if’ can be an awkward one to approach - particularly for those who are in business with relatives or friends and even more so when it’s brought up at a time when things are not going well.
“My experience, however, is that it’s a conversation which a greater number of business owners across Scotland would be well advised having.
“The steps to be taken in the event of a shareholder dispute need to be built into contingency plans and procedures to help protect the future of the business and those who could be affected by any decisions made.”
Nick has worked with businesses across Scotland for two decades advising on a wide range of corporate and commercial legal issues, including responding to active shareholder disputes - and putting in place the steps that could be followed in the unfortunate eventuality that these occur.
These are generally set out in tailored shareholders’ agreements.
“Shareholder disputes can be complex at the best of times, but when it’s a small or family business they can be even more difficult because they can feel so personal,” Nick added.
“As we set off on new ventures, none of us likes to consider that there may come a time when we fundamentally disagree with some of those closest to us - and no-one wants to dampen the special feeling of being in business alongside family or friends - but there are cases where we need to think about the unthinkable.
“At times when things become financially tighter and there is pressure on profits, for example, human nature is that relationships can become strained. Disagreements over whether to invest for the future or retain reserves, the differing extent to which shareholders are involved in or contribute to the business and who exercises control over decision making and the succession plans of different shareholders can all trigger decisions that people no longer wish to carry on working together.
“In order to protect the business - and the interest of the shareholders - it is important that you know what would happen in that eventuality. A disproportionate number of SMEs unfortunately do not seem to.”
“In many ways, the demands on SMEs have never been greater as many continue to try to recover from the Covid pandemic, respond to the rising costs of living and doing business and, to an increasing extent, engage with and respond to the climate emergency. All of that, however, has only served to highlight the need for the entrepreneurial spirit of any business to be supported by solid legal foundations.
“We want our clients to be in a position where they can seize opportunities for growth and success, as well as being best equipped to deal with any challenges.”
For more information and to contact Nicholas Howie, simply click here.
This article featured online with the Herald on Tuesday 26 September 2023.
