Former Romantic Partners in Shareholder Disputes: How Business Interests are Dealt with Under BC law

Fellow shareholders who are embroiled in family litigation often regret not having shareholder agreements in place. As is often seen with closely-held corporations, the shareholders often do not have any agreements among them and commonly use standard articles of incorporation rather than those catered to their specific circumstances. As a result, corporate record-keeping is not always up to date. More often than not, spouses who own their companies 50/50 end up deadlocked, and are not able to resolve disagreements regarding the company’s affairs. The situation becomes especially difficult if spouses equally own a company, but only one has been in charge of its operations as a director or officer historically. This is especially true for the spouse who is not a director when the spousal relationship ends.

Clear written documentation for the business entity, including agreements, articles and resolutions, can be useful in assisting former spouses in resolving disputes related to corporations they own. Business owners may also wish to structure their corporations in a way that avoids a potential deadlock by avoiding 50/50 ownership, or two potentially duelling directors. Shareholder agreements that clearly specify and contemplate what happens in a breakdown, including in a spousal relationship, can be very helpful. Similarly, marriage or cohabitation agreements that specify how corporate interests will be dealt with upon a dissolution of the relationship can be useful.

The end of a spousal relationship between fellow shareholders can also often involve a shareholders’ dispute in addition to a family law action. Spouses and shareholders will have remedies under both family law and corporate law principles but legal disputes of this nature, particularly when there are no pre-existing agreements, can become prohibitively expensive and onerous.

Dispute Resolution: Collaboration, Litigation, and Jurisdiction

Disputing spouses can choose to pursue a number of legal avenues to resolve disputes relating to issues such as property division, including shareholdings, upon the dissolution of the relationship. For instance, parties may choose to pursue mediation or arbitration, in lieu of litigation. They may choose to use the collaborative law framework, in which parties agree to abide by a code of conduct, retain counsel trained in collaborative law, and if unsuccessful, are required to retain new counsel. This may be particularly useful in family law disputes involving children or extended families members who wish to retain a harmonious relationship.

https://www.lexpert.ca/legal-insights/former-romantic-partners-in-shareholder-disputes-how-business-interests-are-dealt-with-under-bc-law/369979