What can be done if a family shareholder is using their shares as a weapon in a family feud?
You can take steps to minimise the risk of a problem like this arising in the first place. One option may be to retain majority ownership of the shares yourself (though this might not suit your tax planning) or to issue family members with shares that do not carry voting rights.
Ensure that the shareholders' agreement includes appropriate dispute resolution procedures. Commonly, these include some form of 'buy-sell' arrangement that provides a mechanism for feuding shareholders to either sell their shares, or buy the shares of their opponent, at a fair price.
You can also try to build a consensus that business decisions will be taken on the basis of what is best for the business, rather than to pursue private agendas. This can be done informally or as part of agreeing a family charter (see question 2).
The problem is more difficult when a feud arises without any prior agreement on how to deal with it. You may be able to negotiate a resolution by appealing to individuals' self-interest: pointing out that the damage to the business is hurting everybody. It may also be worth reminding people of their legal responsibilities. Decisions - and feuds - often take place between individuals acting as directors rather than shareholders. As directors, they have legal responsibilities to their company, such as to promote its long-term success, not to get into situation where their interests conflict with the company without board knowledge and shareholder approval, and to act with due skill, care and diligence. Overall, these mean they should put the company's interests before their own, including in family quarrels.
Ultimately, the best solution is often to encourage one individual to sell their shares. Even without a shareholders' agreement specifying how this should be done, you can make an offer and negotiate a price. Where existing shareholders don't want to pay for the shares (for example, because of insufficient personal funds) but are unwilling to allow outsiders to buy them, it may be possible to arrange for the company to buy the shares back.
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