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Shareholders' Agreements and Disputes in Bangladesh: A Lawyer's Guide to Protection and Resolution

Updated: Apr 3, 2023




In Bangladesh, a shareholder's agreement is a legal document that outlines the rights, responsibilities, and obligations of shareholders in a company. It is an essential tool for protecting the interests of shareholders and resolving disputes that may arise. A shareholder's agreement provides a clear understanding of the expectations of the shareholders and sets out the procedures to be followed in the event of a dispute.


In this article, we will discuss the importance of shareholder agreements, common disputes that arise in Bangladesh, and the legal protections and resolutions available to shareholders.



The Importance of Shareholders' Agreements


Shareholders' agreements are essential for protecting the interests of shareholders in a company. A well-drafted shareholder agreement can provide a clear understanding of the expectations of shareholders and set out the procedures to be followed in the event of a dispute. The agreement may also outline the roles and responsibilities of the directors, the distribution of profits, and the process for the transfer of shares.


The shareholders' agreement may also include provisions that protect minority shareholders from being unfairly treated by the majority shareholders. For example, the agreement may include a provision that requires the company to seek the approval of the minority shareholders before making any significant decisions.



Common Disputes in Shareholder Agreements in Bangladesh

Disputes can arise in shareholder agreements due to a variety of reasons. The most common disputes that arise in Bangladesh are as follows:


1. Disputes over the distribution of profits - Shareholders may disagree on the distribution of profits, leading to disputes that can be difficult to resolve.


2. Disputes over the management of the company - Shareholders may disagree on how the company is managed, leading to disputes over the appointment of directors, the company's strategy, and other management decisions.


3. Disputes over the transfer of shares - Shareholders may disagree on the transfer of shares, leading to disputes over the valuation of the shares and the process for transferring them.


4. Disputes over the control of the company - Shareholders may disagree on the control of the company, leading to disputes over the appointment of directors and the company's strategy.


5. Disputes over the breach of the shareholder agreement - Shareholders may disagree on whether the terms of the shareholder agreement have been breached, leading to disputes over the enforcement of the agreement.




Legal Protections and Resolutions for Shareholders

In Bangladesh, shareholders have legal protections and resolutions available to them in the event of a dispute. The most common legal protections and resolutions available to shareholders are as follows:


1. Shareholders' Meeting - Shareholders have the right to convene a shareholders' meeting to discuss any disputes or issues that may arise. Shareholders can also use this forum to make decisions on the management of the company and the distribution of profits.


2. Shareholders' Resolution - Shareholders can pass a resolution at a shareholders' meeting to resolve disputes or make decisions on the management of the company. Shareholders can also pass a resolution to remove a director or appoint a new one.


3. Mediation - Shareholders can use mediation to resolve disputes without going to court. Mediation is a voluntary process where a neutral third party helps the parties to reach a mutually acceptable agreement.


4. Arbitration - Shareholders can use arbitration to resolve disputes instead of going to court. Arbitration is a process where an independent arbitrator hears the evidence and makes a decision that is binding on the parties.


5. Court Action - Shareholders can take court action to enforce their rights or seek damages for any breaches of the shareholder agreement.




Scenarios and Examples

To illustrate the importance of shareholder agreements and the legal protections and resolutions available to shareholders, we will provide some scenarios and examples below:



Scenario 1:

ABC Ltd. is a company owned by four shareholders. Two of the shareholders have a 60% shareholding, while the other two have a 40% shareholding. The two majority shareholders want to use the profits of the company to invest in a new project. However, the minority shareholders want the profits to be distributed among the shareholders as dividends.


Solution:

In this scenario, the minority shareholders can convene a shareholders' meeting and pass a resolution to distribute the profits as dividends. If the majority shareholders refuse to comply with the resolution, the minority shareholders can take legal action to enforce their rights.


Scenario 2:

XYZ Ltd. is a company owned by two shareholders. The shareholders have equal shareholding in the company, and both are directors of the company. The two shareholders disagree on the strategy of the company, with one wanting to expand the business while the other wants to focus on the existing business.


Solution:

In this scenario, the shareholders can use mediation to resolve their dispute. A neutral third party can help the parties to reach a mutually acceptable agreement on the strategy of the company. If mediation fails, the shareholders can resort to arbitration or court action to resolve their dispute.


Scenario 3:

PQR Ltd. is a company owned by three shareholders. One of the shareholders wants to transfer their shares to a third party. However, the other two shareholders do not want the shares to be transferred as they do not want to dilute their shareholding.


Solution:

In this scenario, the shareholders can refer to the shareholder agreement to determine the process for transferring shares. The agreement may require the consent of all the shareholders before shares can be transferred. If the shareholders cannot agree on the process for transferring shares, they can resort to arbitration or court action to resolve the dispute.



Shareholders' agreements are essential for protecting the interests of shareholders in a company. A well-drafted shareholder agreement can provide a clear understanding of the expectations of shareholders and set out the procedures to be followed in the event of a dispute. Disputes can arise in shareholder agreements due to a variety of reasons, and shareholders have legal protections and resolutions available to them in the event of a dispute. The most common legal protections and resolutions available to shareholders in Bangladesh are shareholders' meeting, shareholders' resolution, mediation, arbitration, and court action. It is important for shareholders to understand their rights and obligations under the shareholder agreement and seek legal advice if necessary.

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Mar 19, 2023
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