Avoid shareholder conflicts: Structure instead of ambiguity

In many medium-sized companies, the relationship between the shareholders has been stable for years. Decisions are made by mutual agreement, responsibilities have grown, and roles are taken for granted.

In such structures, shareholder conflicts do not arise suddenly, but over a longer period of time. Through gradual changes, unspoken expectations or developments that are perceived as unfair. They often ignite over details – triggered by a single decision, for example – although the actual trigger lies much deeper.

In the absence of clear rules and mechanisms in the articles of association, there is also no common understanding of how to deal with such situations. The result: blockages, misunderstandings and escalation that could be avoided.

What happens if shareholder agreements do not grow with the company?

In practice, it often turns out that the company was formally established years or decades ago – often with a standard notarized contract. At that time, it was not foreseeable how dynamically the company would develop. The actual development, the increased responsibility and the complexity of the structures have changed considerably since then. However, the contractual basis has not.
In family-owned companies, articles of association often remain unchanged for decades. Even if the ownership structure, operational roles or economic circumstances have long since changed.

New shareholders are admitted, shares are transferred or inherited – but the articles of association remain unchanged. As a result, the contractual order no longer matches the actual organization. And if differences arise, there is no suitable basis for responding to them objectively.

When participation and contribution diverge

A frequent starting point for disagreements is the subjective perception of an imbalance: who bears how much responsibility, who contributes how much time – and who benefits to what extent?

Particularly in grown structures, the ownership structure and operational roles often no longer match. While the distribution of profits is regularly linked to the capital shares, the actual contribution of the individual shareholders changes over the years.

Compensation via salaries, bonuses or special remuneration is generally possible – but is quite sensitive from a tax and legal perspective. Arm’s length principles, constructive dividends and a lack of documentation quickly result in risks.

Another aspect: it is often difficult to realistically reflect the economic evaluation of individual contributions without tax and business management support. In family-run companies with operationally active shareholders, the continuous analysis of key figures, processes and results is crucial. A transparent view of business developments creates trust and enables well-founded decisions to be made. This database forms the basis for the development of performance-oriented and fair remuneration systems.

This is where the strength of an integrated approach becomes apparent: Combining legal structuring, tax framework conditions and business reality allows for constructive solutions. These solutions are both comprehensible within the company and resilient from a tax perspective – and can prevent conflicts.

How do articles of association protect against conflicts?

Well-designed articles of association are no substitute for consensus – but they create a reliable framework in the event such consensus is lacking.

If this framework is missing, the parties involved naturally assume their own interpretation in the event of ambiguities – and overlook the risks that could arise from a neutral perspective. Each side sees itself as being in the right. The less tangible the regulation is, the greater the gap that is filled by interpretation.

Articles of association are not only effective when a dispute arises – but above all beforehand:

• by providing clear procedural rules for disagreements
• by providing for staged resolution procedures that allow time for agreement
• or by containing provisions that could have such a detrimental effect in the event of a dispute that no party would consciously accept them

Such structures have a preventative effect because they make the risk realistic for both sides. This makes more objective negotiations more likely.

Legal and tax-related pitfalls in practice

In the absence of coordinated regulations, the general provisions of the German Limited Liability Companies Act apply – often with results that do not fit the specific case. Typical examples: 

• No contractually agreed severance payment on departure
• Voting rights ratios that do not match the actual distribution of roles
• No provision for stalemate situations
• No mechanisms for dispute resolution or separation
• Lack of differentiation in profit appropriation, distribution and salary structure

Such a conflict can also have far-reaching tax consequences. For example, the risk of reclaiming shareholder remuneration, the threat of constructive dividends or the unclear allocation of expenses. The settlement of severance payments or withdrawal from the company can also have accounting effects that can no longer be corrected in the current year.

Creating structure before it becomes necessary

Articles of association that are tailored to the current ownership and company situation not only help in the event of a dispute. They prevent conflicts from arising and give all parties involved guidance on how to deal with changes.

It is important to consider tax and legal aspects together: Remuneration must be compatible, but also appropriate and documentable. Ownership structures should match the operational responsibility. And dispute resolution clauses should not only be formally regulated, but also realistically applicable.

The more specific the structure, the lower the risk of conflicts building up over years – or escalating over minor details.