Business negotiations no longer take place exclusively around a boardroom table.
For founders, directors and shareholders, some of the most commercially significant discussions can now happen through WhatsApp, Slack, Microsoft Teams and email. A message sent in seconds can potentially become crucial evidence months or years later when a shareholder dispute arises.
But can a WhatsApp message actually create a binding agreement for the sale of shares?
Consider the following scenario.
Three founders establish an Irish technology company. Their respective shareholdings are 45%, 45% and 10%.
The company has a basic constitution but, as is common with many early-stage businesses, the founders never put a comprehensive shareholders’ agreement in place.
As the business develops, disagreements emerge concerning the contribution being made by one of the founders. Relations deteriorate and the shareholders begin negotiating that founder’s exit from the company.
Over several weeks, discussions take place through meetings, telephone calls and, increasingly, WhatsApp.
Eventually, one founder sends the following message:
So we’re agreed — €150k for your shares, paid €50k now and €100k when the next funding round closes. You resign as director Friday.”
The departing shareholder replies:
“Agreed. Get the paperwork done.”
No formal share purchase agreement has yet been signed.
Before the transaction is documented, however, the remaining shareholders reconsider the deal.
They argue that the WhatsApp conversation merely recorded negotiations and that there could be no binding agreement until a formal share purchase agreement was prepared and signed.
The departing shareholder takes the opposite position.
In his view, the parties had already agreed the essential commercial terms. The lawyers were simply being asked to document a binding deal that had already been concluded.
What began as a founder disagreement has now developed into a potentially significant shareholder dispute.
The fact that negotiations take place electronically does not, by itself, prevent an agreement from having legal consequences.
Ireland’s Electronic Commerce Act 2000 expressly addresses electronic communications, contracts, documents and signatures. Among other things, the legislation provides that electronic material should not be denied admissibility in legal proceedings solely because it is electronic.
The real question in a dispute of this kind is therefore unlikely to be simply:
“Was anything signed on paper?”
Instead, the parties may need to examine whether the communications, considered objectively and in their proper commercial context, demonstrate the elements necessary for a binding agreement.
That can involve questions such as:
These questions can become particularly important in shareholder and founder disputes, where months of informal communications may need to be reconstructed to establish precisely what the parties agreed.
Two words can make an enormous difference in commercial negotiations.
Compare:
with:
“Agreed in principle, subject to contract, legal documentation and all required corporate approvals.”
The first could potentially be relied upon as evidence that the parties considered the commercial bargain concluded.
The second provides considerably clearer evidence that the parties did not intend to become legally bound at that stage.
Whether an agreement exists will ultimately depend on the facts and the communications viewed in context. Simply adding or omitting a particular phrase does not automatically determine every case.
But where substantial shareholdings, company control or significant sums of money are involved, ambiguity can create fertile ground for litigation.
Recent decisions outside Ireland also demonstrate why businesses should not assume WhatsApp is legally insignificant simply because it feels informal. Courts have examined WhatsApp exchanges when determining whether parties had concluded commercial contracts, including circumstances where formal documentation was expected to follow.
Electronic communications can also become an important evidential record.
In a shareholder dispute, solicitors may need to examine much more than the company’s formal constitutional documents.
Relevant evidence could include WhatsApp conversations, emails, Slack or Teams messages, board minutes, draft agreements, cap tables, funding documents and communications between founders, directors, shareholders and advisers.
Irish court rules recognise that a contractual relationship can potentially be inferred from a series of letters, conversations or surrounding circumstances.
This means that an apparently casual message sent during negotiations should not automatically be treated as legally irrelevant.
This scenario also illustrates another recurring source of shareholder disputes in Irish companies: the failure to put an effective shareholders’ agreement in place while relationships are good.
A properly drafted shareholders’ agreement can establish procedures dealing with matters such as shareholder exits, share transfers, valuation mechanisms, decision-making, reserved matters, deadlock, director appointments and dispute resolution.
Without clear contractual machinery, a disagreement between founders can quickly become a dispute about what was said, what was promised and what everybody believed had been agreed.
That uncertainty can be expensive.
Treat the digital boardroom like the physical boardroom.
WhatsApp, Slack, Teams and email may feel conversational, but messages sent through them can potentially become important evidence in subsequent shareholder litigation or commercial disputes.
When negotiations are not intended to create a binding agreement until formal contracts are executed, that position should be made clear throughout the negotiations.
Businesses should also consider:
Shareholder disputes frequently involve more than a disagreement about shares. They can affect company control, management, funding, directorships, business relationships and the underlying value of the company.
Early strategic advice can therefore be critical.
Sherwin O’Riordan Solicitors advises shareholders, directors, founders and companies in Dublin and throughout Ireland on complex shareholder and corporate disputes, including disputes concerning shareholder agreements, company control, founder exits, share transfers, director disputes and the interpretation and enforcement of commercial agreements.
Where a dispute has arisen from WhatsApp messages, emails or other electronic communications, the precise wording, chronology and surrounding commercial context can be decisive.
If you are involved in a shareholder dispute, or believe an agreement concerning shares has been made or breached, seek legal advice before taking further steps or sending communications that could affect your position.
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