A conflict between the board of directors and shareholders occurs more often than many entrepreneurs think. Although the board of directors and shareholders in principle share the same goal – the success of the company – tensions regularly arise in practice. These conflicts can lead to standstill, distrust and even legal proceedings. In this article, you will read where conflicts between the board of directors and shareholders arise and what solutions are available.
The role of the board of directors and shareholders
Within a private limited company (BV), the board of directors and shareholders each have their own role. The board of directors is responsible for day-to-day management and execution, while shareholders exercise their authority through the general meeting.
A conflict between the board of directors and shareholders often arises when expectations no longer align or when powers begin to overlap.
Common causes of conflicts
1. Differences of opinion about the direction of the company
A classic cause of a conflict between the board of directors and shareholders is a difference of opinion about strategy, investments or growth. Shareholders sometimes want faster returns, while the board of directors opts for long-term stability.
2. Lack of transparency
When shareholders feel they are insufficiently informed, distrust quickly arises. This can escalate into a serious conflict between the board of directors and shareholders.
3. Conflicts of interest
Conflicts also arise when directors allow personal interests to influence decision-making. This erodes trust and can lead to legal action.
4. Distribution of profits and dividends
Discussions about dividend distribution are a common source of tensions. Shareholders want distributions, while the board of directors wants to retain the profits.
5. Power dynamics within the private limited company (BV)
With multiple shareholders or a minority interest, a conflict between the board of directors and shareholders can arise over control and influence.
Consequences of an escalating conflict
When a conflict between the board of directors and shareholders escalates, it can have major consequences for the company:
- decision-making comes to a standstill;
- investments stall;
- employees notice the tensions;
- external parties lose confidence;
- the continuity of the company is jeopardised.
What do the articles of association and agreements say?
In a conflict between the board of directors and shareholders, it is essential to consult the articles of association and any shareholders' agreement. These often contain provisions on powers, information provision and dispute resolution.
Practical solutions for conflicts
Consultation and mediation
At an early stage, consultation or mediation can prevent escalation. This requires a willingness to put business interests first.
Adjustment of agreements
Sometimes a conflict can be resolved by adjusting or more clearly recording agreements.
Legal action
When consultation does not offer a solution, legal action may be necessary, for example to challenge decisions or enforce rights.
International shareholders
In international companies, a conflict between the board of directors and shareholders can be extra complex. Foreign shareholders have to deal with Dutch law and different governance structures.
General information about governance and shareholder rights can be found at the Chamber of Commerce.
What can Arslan Advocaten do for you?
Arslan Advocaten assists directors and shareholders in conflicts within the private limited company (BV). We analyse the situation, advise on solutions and guide negotiations or proceedings when necessary.
Read more about our expertise in corporate law, our experience with shareholder disputes and international commercial disputes.
Costs and litigation funding in conflicts between the board of directors and shareholders
In disputes between the board of directors and shareholders, we do not work on a no cure no pay basis in principle. Such cases require a careful legal and strategic approach.
However, this does not mean you have to bear these costs yourself. In many corporate disputes, it is possible to make use of litigation funding.
We work with an independent litigation funder who – after a substantive assessment of your case – may decide to pay all litigation costs. This includes, among other things:
- attorney fees;
- court fees;
- any expert costs;
- litigation costs on appeal.
If litigation funding is granted, you as a client do not have to pay these costs yourself. The litigation funder bears the financial risk of the proceedings.
The litigation funder only receives compensation in the event of a positive result. For you, this means that litigation is possible without incurring costs in advance or during the proceedings.
About the author
This article was written by Onur Arslan, lawyer and founder of Arslan Advocaten. He specialises in corporate disputes, including conflicts between the board of directors and shareholders.
Would you like to discuss how your conflict within the private limited company (BV) can be resolved?