Many businesses conduct themselves under the umbrella of an incorporated company. The company is often owned by one shareholder and this makes the conduct of the business a fairly simple matter. However, if the company is owned by two or more shareholders, troubles may arise as in any relationship. For example, there may be a deadlock between two equal shareholders which makes it impossible for the company’s business to be carried on. Or, the company may be owned by a majority shareholder and a minority shareholder and the minority shareholder is experiencing a lack of confidence in the management of the company’s business by the majority shareholder.
Disgruntled shareholders may look to the courts to resolve their problems by applying to have the affairs of the company wound up and the assets liquidated. A winding up order creates a “fire sale” situation. Courts naturally view such an order as a drastic measure to be resorted to only in extreme cases where there is no reasonable alternative to resolve the problems facing the shareholders. To avoid this drastic measure, the courts have adopted a creative approach to resolving shareholder problems. A common approach is to give a shareholder an opportunity to buy out the disgruntled shareholder, or vice versa, after a proper valuation of the shares. An order to wind up the company will only be made if the share purchase does not take place. If the company owns land as well as a business, the court may order that the land be appraised by an independent appraiser and that the business be appraised separately by an independent qualified accountant. The bottom line is that the courts strive to implement a solution to dissolve the shareholder relationship in order to avoid the dissolution of the company itself.