Shareholder dispute: deadlock, exclusion and dissolution

Two shareholders who no longer speak can freeze an entire company: accounts unapproved, dividends stuck, decisions impossible. Ways out exist, but they depend on the articles signed at the start. A lawyer reviews your file in 20 minutes on Avocat20min.fr.

Shareholder dispute: where the deadlock comes from

Most situations trace back to a poorly designed split of the capital. An equal split, or a blocking minority held by someone who has left the venture, is enough to freeze the company.

Decisions in fact fall under different majorities:

• Ordinary decisions, such as approving the accounts, by simple majority.
• Extraordinary decisions, such as amending the articles, by two thirds or three quarters depending on the legal form.
• Unanimity, required to change nationality or increase the shareholders' commitments.

A shareholder holding more than a third of the capital therefore blocks any change to the articles, however much of a minority they are in practice.

Abuse of majority and abuse of minority

A shareholder dispute often takes the form of one of these two mirror excesses, which the law sanctions. Abuse of majority means a decision taken against the company's interest and solely to favour the majority at the expense of the minority.

Systematically putting profits into reserves, while the majority pay themselves generously, is the classic example. The sanction is the annulment of the decision, plus damages.

Abuse of minority, conversely, targets a shareholder blocking an operation essential to the company's survival. The judge does not vote in their place: they appoint an ad hoc agent to represent the defaulting shareholder at a fresh meeting.

The tools that break a deadlock

Tool	What it allows	Who applies
Management audit	Expert review of one or more management decisions	A shareholder holding at least 10 % or 5 % of the capital
Ad hoc agent	Represent a blocking shareholder or convene a meeting	Any shareholder with a legitimate interest
Interim administrator	Run the company in place of its directors	Any shareholder, where danger is imminent
Mediation	Negotiate an exit without litigation	The shareholders, together

An interim administrator stays an exceptional measure. The judge orders it only where the shareholder dispute paralyses the company and threatens it with imminent danger.

Mediation, for its part, works well where a reasonable valuation is still conceivable. It costs far less than several years of litigation.

Excluding a shareholder: rarely possible

No statute allows a shareholder to be excluded for a shareholder dispute alone. The rule protects ownership of the shares, and judges apply it strictly.

Three exceptions exist:

• An exclusion clause in the articles, common in an SAS, which must set out the grounds, the procedure and the valuation.
• Loss of a required status, for instance in a professional practice company.
• Insolvency proceedings, where the court may order the directors' shares to be sold.

In an SARL, an exclusion clause is invalid, for want of a statutory basis. An agreed buy-out of the shares then remains the only way out, possibly after a valuation by an expert appointed under article 1843-4 of the Civil Code.

Dissolution for just cause

Article 1844-7 of the Civil Code allows any shareholder to apply for judicial dissolution where a shareholder dispute paralyses the running of the company. It is the ultimate weapon, and it sometimes rebounds on the person using it.

Two cumulative conditions apply. The discord must genuinely paralyse the business, since a simple falling-out is not enough. The applicant must also not be the source of the deadlock.

Judges often refuse where the company remains profitable. A threat of dissolution therefore serves mainly as leverage in negotiating a buy-out.

Prevention rather than cure

A shareholders' agreement defuses most shareholder disputes. Drawn up at formation, or when a new shareholder joins, it organises in the calm what later becomes heated.

Four clauses matter in particular:

• The tag-along clause, which protects minorities on a sale.
• The approval clause, which controls who joins the company.
• Cross put and call options, which fix the valuation method in advance.
• The shotgun clause, where one party names a price and the other chooses to buy or sell at it.

These clauses belong to the moment of setting up a company, while relations are good. After the conflict, nobody signs anything.

When to consult a lawyer

A lawyer classifies the deadlock, chooses between an audit, an ad hoc agent and interim proceedings, and prepares the exit negotiation. They also assess the director's possible liability. A business lawyer answers within 20 minutes. The texts sit on Légifrance.