Legal Updates

Involvement in the management of a company does not give one shareholder the right to force another shareholder to sell its shares

June 21, 2022

A shareholder sought to force his brother, who owns half of the family company shares, to sell him his shares in light of loss of trust between them, contending that his connection to the companies is stronger than his brother's due to his involvement in managing the company for many years.

The Supreme Court held that there is no place to give one party priority over the other and an equal rights seperaion should be done by way of a merger. In the event of oppression of a shareholder or a 'dead lock’ situation between the shareholders, the Court may settle the manner by separation between the parties at its discretion, whether by forcing one shareholder to purchase the other or by determining another mechanism for making the sale. When there is a complete loss of trust between the parties, the conventional solution is through a mechanism that gives each of the parties an equal opportunity, as far as possible, to purchase the shares of the other party, at a fair price. Here, the shareholder who sought to force the sale served as a CEO for many years and held management shares that gave him personal rights to run the company. However, this minor advantage does not give priority as these are family companies founded by their father and were inherited to them in equal holdings and the connection of each party to the companies is not purely economic. Therefore, in view of the loss of trust, the separation must be conducted by a tender in which the parties will submit their bids simultaneously, and the party bidding the highest bid will purchase the other's share, but the purchase will be made according to the second bid (i.e., the lower of the two bids) and by doing so, each has an equal opportunity to acquire the other's shares.