Conflict Resolution in Smaller Limited Liability Companies: With a Focus on the Relation Between a Majority Shareholder and a Minority Shareholder

Nikolaj Crone Soltoft

Student thesis: Master thesis

Abstract

This Master thesis will generally deal with conflicts between shareholders in smaller limited liability companies. The perspective of the thesis is a case, in which there between a founder and majority shareholder, who owns 70 pct. of the company, and an investor and minority shareholder, who owns the remaining shares, has arisen a conflict. The conflict is caused by difference opinions between the parties regarding the development of the company. The majority shareholder has afterwards offered to buy the minority shareholders shares. The thesis sets of by first explaining and defining why conflicts in such a company arise. It can be deduced from this, that is it often due to different interests between the parties. Subsequently, the consequences of such a conflict are briefly described. The next section tries to explain why the parties cannot reach an agreement in their negotiation. Firstly, it is shown how Coase's theory on transaction costs and the assumptions of neo-classical theory can explain the unsuccessful negotiations. However, these do not solely seem to explain the unsuccessful negotiations. Therefore, a modification has been made with reference to behavioral economic theory. The findings show that by the addition of more realistic hypotheses, it is possible to give a more realistic explanation for the failed negotiation. Because it is impossible for the parties to find a solution to the conflict through negotiation, it will be analyzed which methods, if any, the majority owner has to compulsory redeem the minority owner under Danish law. The conclusion of this analysis shows that the majority owner has one possible method, but the legality of this is associated with vast uncertainty. Since neither the negotiation nor the legislation can resolve the conflict, it seems necessary for the parties to regulate their joint ownership of the company before the conflict arose. However, the parties’ shareholder agreement does not contain any tools for this. Therefore, it is examined how a shareholder agreement could have been drafted so that it could contribute to the resolution of the conflict. The result of the assessment shows, that the parties advantageously could have an exit provision in their shareholder agreement. Likewise, the parties should draw a provision with requirement of mediation and arbitration rather than ordinary court treatment.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages83
SupervisorsHenrik Lando