9th April 2021
A shareholder might want to liquidate their business for various reasons. Perhaps they’re approaching retirement or have another business venture in mind, but what happens if there are only two shareholders, each with a 50% share of the company?
Typically, the Articles of Association will lay down the procedure for dealing with shareholder disputes, but when neither director/shareholder is willing to change their mind, the situation becomes more difficult to resolve.
Ordinarily, if both shareholders agree to liquidate their solvent company, a Members’ Voluntary Liquidation (MVL) is undertaken by a licensed insolvency practitioner (IP). This closes down the business in an orderly manner, enabling both shareholders to move on.
But what happens if 50/50 shareholders don’t agree that the company should be liquidated?
When a company is formed with two shareholders, it seems natural to operate on equal terms with each individual holding 50% of the shares. The business might flourish and grow with no issues over many years, but if a dispute arises, the fact that share ownership is equal, with nobody holding a casting vote, may create a complex problem.
The issue can quickly affect the day-to-day running of the business, as directors’ focus is placed on the ongoing dispute. Sales and customer service may suffer, for example, and create financial problems even when a business has previously been highly profitable.
If a 50% shareholder wants to liquidate the company, for whatever reason, the situation can quickly become deadlocked and seemingly impossible to escape. Without the casting vote of another shareholder, a stalemate develops and external assistance may be required to resolve the issue.
Independent mediation services can be effective in releasing a deadlock, helping the shareholders take a more objective view. One shareholder might choose to resign, for example, and release the other shareholder to carry on in the business.
If external mediation doesn’t work, however, can one 50% shareholder liquidate a company without the agreement of the other?
It’s possible for a 50% shareholder to liquidate a company by presenting a winding up petition at court on ‘just and equitable’ grounds. The court then comes to a decision on the best way forward for the company, which may or may not be liquidation.
Just and equitable winding up petitions enable a deadlock of this type to be broken, but the court will also take into account any other possible actions that may be appropriate, in addition to liquidation.
The court will try to establish whether trust between the two shareholders has completely broken down, as well as looking at other potential options. So what alternatives to liquidation might be available to break this type of deadlock?
One possible route out of the deadlock might be for one party to buy out the other, if they’re in a financial position to do so. This would enable the partner who wants to liquidate to move on, and allow the company to continue in business under sole ownership.
It’s important to seek professional help if you’re in a dispute with another shareholder, particularly in a situation where you each hold 50% of the shares in the company. Seeking help early on can avoid a costly stalemate, and protect the business from unnecessary financial decline.
When a third party assesses the situation, as is the case when a just and equitable winding up petition is presented, the best way forward may become clearer. Even if liquidation doesn’t take place, however, seeking early assistance is hugely beneficial.
Real Business Rescue can provide the help and advice you need if you’re a 50% shareholder and are in dispute with your business partner. We’ll provide guidance on how to resolve the situation, and talk you through the process of liquidation via a just and equitable winding up petition.
Please get in touch with our partner-led team. We offer free, same-day consultations and operate an extensive network of offices throughout the UK, so you’re never far away from reliable professional assistance.