5 Reasons for Directors’ Disputes

Disputes between limited company directors can come about for a variety of reasons. Here are the 5 most common ones; we’ve compiled these so that you can keep an eye out to make sure they don’t happen in your company.

Reason 1 – Differences in contributions to the business

In business, it becomes inevitable that a director or a particular group of directors will eventually contribute more to a project than others, whether that is in time or skills. Perhaps they brought in more of the work than their fellow directors, or provided more of the capital.

Disputes most commonly arise due to finances and differences in contributions more than any other cause. More often than not, the director(s) who contribute the most capital will begin to resent the other directors for failing to contribute as much to the organisation, yet still pull a similar salary.

There is, however, a clear solution to this problem, define each director’s role from the onset and clearly outline what is expected of each. This allows for the company to renegotiate salaries and provide for the inclusion of a bonus for whoever contributes most.

This method provides not only a method for performance-based bonuses, but also provides a clear path out of the company for under-performing executives.

Reason 2 – Variation in skills needed as business grows

Business needs routinely changes over time as they adapt to changing projects and a redirected company focus. This is most often seen in the skills and overall finances a business requires.

What tends to happen in these instances is that one director who has a particular skill set and specialised business acumen, moves from being instrumental while the business was being formed, to occupying a less-vital role.

Similarly, one director may be responsible for increased funding during the early stages of the business, when finances were slim. As the business develops a larger market share and has more money, the initial investment(s) become less vital to the company’s success and the director occupies a less vital role as the company moves forward.

The solution to this problem is the same solution from our first example. You must define each person’s role from the onset and make it clear exactly what is expected of him or her.

Reason 3 – Financial strain

Financial strains were common during the recession, and highlighted redundant staffing as companies moved to tighten their belts and streamline their processes.

To overcome redundant staffing issues, a business should acknowledge that there will be times when even directors have to go.

In these instances, it is best to negotiate fair compensation for their removal from office and to show them how their removal can be a blessing in disguise. After all, removal from office absolves them of personal liability in the event of future company insolvency.

Reason 4 – Personality clashing

Whenever people collaborate together on a project or in a business venture, there is always the potential to have clashing personality styles that may present a problem to company and employee cohesion.

In order to address this, if you find that you’re unable to work with another director, you should acknowledge this as soon as possible. After coming to terms with this realisation, the business can decide if it is you, or the other director who will need to be removed in order to keep company cohesion.

During turbulent times, it is best for the board to focus on a mutually acceptable exit plan as quickly as possible.

Reason 5 – Breach of duties

A breach of duty occurs when a director is found to have violated their duty to the company. This may occur when they are found to taken company funds without obtaining authorisation to do so.

The solution to this sort of activity is to ask the director to repay the company for the unauthorised transaction. If this should fail, then legal action may be sought under the advice of a lawyer.