Identifying and removing potential areas of dispute and resolving conflict between directors and shareholders in small and private companies

Abstract

The small private company faces considerable hurdles as it strives to survive in a competative and often hostile environment. Large numbers are born each year and many, like the salmon fry, have the statistical expectation of death.

Whilst components such as capital base, marketing prowess, product ingenuity and service quality have their place in helping to sustain and grow these infants , the guiding hands provided by the key individuals of directors and shareholders, often fulfilling both roles in these entities, is paramount to their future success. likewise these guiding hands can have an equally key role in their failure.

The essence and strength of the small private company lies in its ability to change rapidly both in the face of poutside adversity and in the pursuit of new opportunity. Much of this ability is founded in the short chain of decision making, which typifies their management and ownership, vested in the directors and shareholders for whom continuing good communication is essential.

However, whilst the individuals controlling small private companies when working in concert may have the ability to successfully manage rapid change when faced with an outside adversity, this does not suggest that they are as adept at resolving adversity from within when discord arises, or setting the conditions which are required to minimise discordant effects on the company should these occur. Historically, this province has largely been set by the law.

The aim of this dissertation is to identify how the law has developed in areas which impact on the relationships between directors and shareholders given that it is the law which is primarily setting the criteria on which these relationships are based. The dissertation then seeks to identify what problems are required to be considered in new legislation and reviews the work carried out recently by the Company Law Review Steering Group, and the subsequent White Paper which addresses the contents of their final report.

The dissertation considers critically whether the CLR or the White Paper adequately addresses the problems identified, and whether they propose legislative amendments incorporating suitable solutions for those problems.

Concluding, the dissertaion makes its own proposals for an alternative4 way forward which are considered to be more appropriate to the management, identification and removal of potential areas of dispute; and are more effective in the resolution of conflict between directors and shareholders in small and private companies.