Shareholders' Agreement and Partner Disputes - The Document Written Before the Conflict and Read During It
A partner dispute is the most expensive dispute in business: litigation takes years, the company stalls meanwhile, clients leave, and the winner is often left without a company. Most of these disputes lacked one document, a shareholders' agreement, which says in advance what happens when one wants out, another does not work, a third brings in an investor, or the two can no longer agree. The charter does not settle this; it is public and formal. The agreement is confidential and specific.
This page has two parts: drafting the agreement, which clauses, why, and how they interact with the charter; and the dispute when no agreement exists or it is breached: exit, expulsion, a minority claim, voiding a meeting resolution and unlocking a deadlock. In both cases the lawyer's goal is the same: that the company still exists after the dispute.
Updated · Practice area: Corporate lawyer
What a Shareholders' Agreement Must Say - and What Happens Without It
Each clause resolves a specific future conflict. The right-hand column shows what happens when the clause is missing and the statutory default applies.
A Partner Dispute When No Agreement Exists - Which Tool for Which Situation
Using the information right
A partner with any share has the right to demand financial documents, contracts and the books; refusal is enforced by court and the refusal itself is evidence against the majority. This is always the lawyer's first step; a dispute cannot be won without information.
Convening a meeting and challenging resolutions
The minority has the right to demand a meeting; a resolution adopted in breach of the convening or conduct procedure (withholding dividends, appointing a director, a capital increase "diluting" a share) can be challenged within a short period. The period runs from the meeting; the lawyer checks every set of minutes against the deadline.
A derivative claim in the company's name
If the director or the majority harmed the company (stripped assets, moved a contract to their own company, misappropriated funds) and the company itself does not claim, a partner may sue in the company's name; the damages go to the company, not the claimant, but the value of the claimant's share is restored.
Exit and a demand for buy-out
Without an agreement a partner cannot "just leave": the share must be sold or, in the cases the law provides (abuse of rights by the majority), a court-ordered buy-out at a fair price demanded. A 95% holder has the reverse: a right of compulsory buy-out.
Expulsion
A partner can be expelled only on serious grounds (failure to contribute, material harm to the company, competition, gross breach of loyalty) and by meeting resolution or court, with compensation for the share's value. "Not working" is not in itself a ground; an obligation to work must be in the agreement.
Unlocking a deadlock through court
When the company stalls through inability to govern and no mechanism exists, the court route is extreme: expulsion of a partner where grounds exist, or liquidation of the company. The lawyer's work is often a buy-out negotiated against that backdrop: who buys, at what price, on what schedule, with what security.
A Minority Stake That "Means Nothing" - and a Majority It Constrains
The common belief that a 20% partner "can do nothing" in the company contradicts both the law and practice. The minority has: an information right over every document, a right to demand a meeting, a right to challenge resolutions, a derivative claim against the director and the majority, a right to demand dividends where profit exists and non-distribution is unjustified, and, on qualified matters, a blocking right if the charter so provides. Used correctly, these rights bring the majority to the negotiating table.
For the majority this means that "ignoring" the minority is a legal risk: a wrongly convened meeting, withholding dividends while raising salaries, moving company contracts to a "friendly" company, diluting the minority through a capital increase: each of these can be challenged and sometimes triggers the director's personal liability. The majority's lawyer works on flawless corporate procedure: proper convening, reasoned decisions, independent valuations for related-party transactions.
The best outcome for both is often a "clean separation": the majority buys the minority's share at a fair price, the minority leaves the company with a release of claims. The lawyer documents this deal with a price formula, security for payment and a non-compete, so that the separation does not turn into a new dispute.
How a Deadlocked Company Is Unlocked - Mechanisms for the Agreement
- Escalation and mediation
- First stage: mandatory negotiation at partner level within a deadline, then mediation by an independent mediator. Most deadlocks are resolved here, if the procedure is in the agreement and not "we will agree later".
- Independent director or board
- The casting vote on specific matters to a third party, an independent director or a supervisory board. The most practical way out of operational deadlock in a 50/50 company.
- "Russian roulette"
- One partner offers the other a price; the other chooses to sell at that price or to buy at the same price. The mechanism itself forces a fair price. Works when both have the resources to buy.
- "Texas shoot-out"
- Both name a sealed price; the higher bidder buys the other's share at that price. Fast and final; unfair where resources are unequal.
- Buy-out right at valuation
- One partner (or both, in order) has the right to buy the other's share at an independent appraiser's price, in instalments and with security. The most commonly used mechanism in Georgian practice.
- Liquidation as a last resort
- If nothing works, an agreed liquidation with sale of assets and distribution. Better than court-ordered liquidation because it is controlled.
What to Collect Before a Partner Dispute
- The charter, the shareholders' agreement (if any), a registry extract with shares and director, and the history of every change.
- Meeting minutes, convening notices, voting results: to establish breaches of procedure and deadlines.
- Financial statements, the balance sheet, tax returns, bank statements, as far as available, and letters requesting information if not.
- Related-party transactions: contracts with the majority's or the director's other companies, salaries, bonuses, loans to partners.
- Correspondence between partners: agreements, promises, the history of the conflict, for assessing the duty of loyalty and good faith.
- Evidence of contributions and each partner's work: who contributed what, who did what, for an expulsion or exit case.
Three Partner Disputes
A minority with no dividend for 4 years
A 25% partner; the company is profitable, the majority-director raises his salary every year and declares "reinvestment". Lawyer: information obtained by court, meeting resolutions challenged, a derivative claim over related-party transactions. The majority bought out the share at valuation plus the equivalent of 4 years' dividends.
A 50/50 company that stood still for 8 months
Two founders, the standard charter, both directors with joint representation; after the conflict no contract could be signed and no salary paid. Lawyer for one partner: the prospect of a liquidation claim as leverage, an independent valuation, a buy-out offer in instalments secured by a mortgage over the share. The other partner chose to sell; the company was back at work in 6 weeks.
A co-founder who left after 8 months with 30%
A startup without vesting; the technical co-founder moved to another company after 8 months and kept 30%. Lawyer for the remaining founders: breach of the duty of loyalty (working for a competitor), failure to make the contribution (labour), an expulsion claim at the share's nominal value. Settlement: most of the share returned to the company, 5% retained until the next investor round.
Questions About Shareholders' Agreements and Partner Disputes
The shareholders' agreement contradicts the charter. Which applies?
Between the partners, the agreement, if all partners signed it; towards third parties and the registry, the charter. In practice this means a breach of the agreement triggers the partner's liability (penalty, damages), but a transaction with a third party contrary to the agreement still stands under the charter. The lawyer drafts both documents together so there is no contradiction.
A partner does not take part in the company at all. Can I expel him?
Only if participation (work, management, contribution) was his obligation under the agreement or the charter; then non-performance is a ground for expulsion. If the partner is simply an investor, non-participation is no breach. The alternative is a negotiated buy-out: a passive partner often agrees if the price and the security are fair.
The majority increased the capital and "diluted" my 30% to 10%. Is that lawful?
A capital increase carries every partner's right to participate proportionally; if that right was not offered to you, or the increase was made solely to reduce your share without a real business need, the resolution can be challenged within the short period. The period runs from the meeting; contact a lawyer immediately.
I want to exit and my partner values my share at "zero lari". What price is fair?
Without a formula in the agreement, an independent valuation that considers assets, profit, contracts and the market; in a dispute the court orders expert evidence. The market often discounts a minority share, but retaining control is a premium for the majority; the lawyer uses both factors in the negotiation.
My partner moved the company's clients to his new company. What leverage do I have?
Breach of the duty of loyalty and the non-compete: a derivative damages claim, a ground for expulsion, a demand to stop the competing activity; with a penalty in the agreement, directly. Evidence of the client transfer (correspondence, contracts with the new company) must be gathered quickly, with the information right used in parallel before documents "get lost".
Lawyers for Shareholders' Agreements and Partner Disputes
A shareholders' agreement before the conflict is one day's work; without it, the dispute is won on knowledge of corporate procedure and correct use of the information right. Within 15 minutes the coordinator connects you with a lawyer who drafts shareholders' agreements and litigates partner disputes.
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