This article is for Irish business owners and shareholders who suspect someone isn't following your shareholder agreement.
If you're wondering whether a breach has actually occurred, what type of breach it is, and what you can realistically do about it, this guide covers how to identify breaches, the difference between material and technical violations, and your practical options from negotiation to court remedies.
Key Takeaways
• Material breaches like selling shares without pre-emption rights justify immediate legal action and full remedies including termination. • Always negotiate before litigating shareholder disputes, as court victories often destroy business relationships more than the breach itself. • Penalty clauses above 10% face strict scrutiny; document legitimate costs like legal fees to strengthen enforceability. • You must prove damages with evidence showing losses directly resulted from the breach and were reasonably foreseeable. • Courts grant specific performance for unique obligations like share transfers but not for ongoing duties requiring supervision.
Laura Ryan is a practising Barrister at the Bar of Ireland. She graduated from the Honourable Society of King’s Inns in 2024, having previously qualified and practised as a Chartered Accountant in a big four accounting firm.
How do I know if my shareholder agreement is actually being breached?
Start by reading the specific provision you believe is being violated, as shareholder agreements use precise language that matters. Consider whether any conditions must be met before the obligation applies - for example, pre-emption rights might only trigger when shares are "offered for sale to third parties," not when gifted to a spouse. The key is analyzing what your agreement actually says, not what you think it should say.
What's the difference between a material breach and a technical breach?
Material breaches go to the heart of the agreement and fundamentally undermine its purpose, such as selling shares in violation of pre-emption rights or competing directly with the company. Technical breaches are minor violations that don't substantially affect your rights, like procedural errors. This distinction matters because material breaches allow you to terminate the agreement and seek substantial damages, while technical breaches typically result in only nominal damages.
Can I force someone to actually perform their obligations under the shareholder agreement?
Yes, through a court order called specific performance, but only for certain types of obligations. Irish courts grant this remedy for unique obligations like share transfers with unique characteristics or enforcement of pre-emption rights. However, courts won't order specific performance for obligations requiring ongoing supervision, like attending monthly board meetings or providing regular reports.
How do I prove damages for a breach of our shareholder agreement?
You need concrete evidence showing that losses actually occurred and resulted directly from the breach. Provide accounting evidence for financial losses and prove that lost opportunities would have materialized but for the breach. Vague assertions of harm won't succeed - you must demonstrate specific, foreseeable losses and show you took reasonable steps to minimize those losses.
Should I go straight to court when I discover a breach?
No, negotiate first in almost every breach situation. Litigation is expensive, time-consuming, and can permanently destroy business relationships that your company needs to survive and grow. Court intervention becomes necessary only when a shareholder is actively damaging the business, stealing assets, or repeatedly breaching despite discussions showing bad faith.
Can I enforce a penalty clause that charges €10,000 per day for breach?
Probably not - Irish courts will only enforce clauses that represent a genuine pre-estimate of loss, not penalties designed to punish. A clause stating "€10,000 per day for breach" would likely be struck down, but "€10,000 to cover legal and administrative costs of breach" might be enforceable if reasonable. You must prove the amount was a reasonable estimate of likely damages when the agreement was signed.
What happens if I need to stop someone from transferring shares immediately?
You can seek an injunction - a court order that provides immediate relief before a full trial. However, you must provide an undertaking as to damages, promising to compensate the other party if the court later determines the injunction shouldn't have been granted. This creates financial risk, particularly if you ultimately lose the case.
Is a 15% share deposit forfeiture clause enforceable if someone backs out?
It depends on whether it's a genuine deposit or a disguised penalty. Deposits around 10% are often treated as reasonable in commercial practice, but amounts above this face increasing scrutiny. To strengthen enforceability, clearly document what legitimate costs the deposit covers, such as administration, valuation expenses, legal fees, and opportunity costs.
