Starting a business with someone you trust can be an exciting opportunity.
Whether you are launching a new company with a friend, investing alongside a family member or entering into a commercial partnership, shared ambitions often form the foundation of successful businesses.
However, disagreements can arise.
Differences in management styles, financial expectations or long-term objectives can quickly turn a productive working relationship into a serious commercial dispute.
So, what happens when business partners can no longer agree?
The answer depends on how the business is structured, the agreements in place and the nature of the disagreement.
What Are the Most Common Causes of Business Partner Disputes?
Disputes between business owners can arise for many reasons.
Common examples include:
- Disagreements over how profits should be distributed.
- Concerns about financial management or spending.
- Unequal contributions to the business.
- Allegations of misconduct or misuse of company funds.
- Differences in business strategy.
- Disputes about decision-making authority.
- One owner wishing to leave while another wants to continue.
Without clear procedures for resolving disagreements, these issues can affect day-to-day operations and threaten the future of the business.
Does Your Business Have a Partnership or Shareholders’ Agreement?
One of the first steps in resolving a business ownership dispute is reviewing the relevant legal documents.
For a traditional partnership, this may involve a partnership agreement.
For a limited company, the relevant documents may include the articles of association and any shareholders’ agreement.
These documents can establish how decisions are made, how profits are distributed and what happens when an owner wishes to leave.
They may also contain dispute resolution procedures or provisions dealing with the transfer of ownership interests.
Where no written agreement exists, the applicable legal position will depend on the business structure and relevant legislation.
What If One Business Partner Is Not Contributing?
Disagreements sometimes arise when one person believes they are doing most of the work while another continues to receive an equal share of the profits.
However, the legal consequences depend on the arrangements between the parties.
An owner’s entitlement to profits or dividends does not necessarily depend on the number of hours they work.
The relevant agreements, contractual obligations and legal duties must be considered.
It is therefore important to distinguish between a commercial disagreement and an actual breach of legal obligations.
Can You Remove a Business Partner?
Removing a business partner or shareholder is not always straightforward.
In a traditional partnership, the ability to expel a partner will generally depend on the terms of the partnership agreement.
In a limited company, removing someone as a director is legally different from removing them as a shareholder.
A person may cease to be a director while retaining their shares and associated ownership rights.
Any proposed removal must comply with the relevant agreements and statutory requirements.
Taking action without understanding these distinctions could create further disputes or legal liabilities.
What If Your Business Partner Is Misusing Company Money?
Allegations involving unauthorised payments, misuse of company assets or financial misconduct should be treated seriously.
The appropriate response will depend on the evidence, the business structure and the legal duties owed by the individuals involved.
Company directors, for example, are subject to statutory duties under the Companies Act 2006.
Where misconduct is suspected, it may be necessary to review financial records, preserve relevant evidence and obtain independent legal advice.
In some circumstances, formal legal proceedings may be appropriate.
Can a Shareholder Bring a Claim Against Another Shareholder?
Disputes within limited companies can sometimes give rise to shareholder remedies.
For example, a shareholder may be entitled to seek relief where the company’s affairs are conducted in a manner that is unfairly prejudicial to their interests.
Such claims can arise in a range of circumstances, including certain disputes over management, exclusion from business affairs or misuse of company resources.
However, not every disagreement between shareholders amounts to unfair prejudice.
The court will consider the facts, the parties’ legal rights and the circumstances of the company’s operation.
Is It Better to Negotiate or Go to Court?
Litigation can be expensive, time-consuming and disruptive to business operations.
For this reason, it is often sensible to explore alternative dispute resolution before commencing proceedings.
Potential options include:
Negotiation: The parties attempt to reach a mutually acceptable agreement.
Mediation: An independent mediator helps the parties explore a possible settlement.
Buyout arrangements: One owner purchases the other’s interest in the business.
Restructuring: The parties agree to change management responsibilities or ownership arrangements.
Dissolution or winding up: Where the business relationship cannot continue, it may be necessary to consider bringing the arrangement to an end.
The most appropriate solution depends on the circumstances and the commercial objectives of the parties.
What If One Partner Wants to Leave the Business?
An owner’s departure can raise important questions about valuation, outstanding liabilities, ownership of assets and future competition.
Before agreeing to a departure, the parties should consider how the outgoing owner’s interest will be valued and whether any restrictions apply.
They should also establish how existing contractual commitments and financial obligations will be addressed.
A properly documented exit arrangement can help reduce uncertainty and minimise the risk of future disputes.
How Can You Prevent Business Partner Disputes?
Although disagreements cannot always be avoided, clear legal documentation can significantly reduce the likelihood of serious conflict.
Businesses should consider establishing written agreements covering decision-making, profit distribution, responsibilities, ownership transfers and dispute resolution.
Regular communication and transparent financial reporting can also help identify potential problems before they escalate.
Seeking legal advice when establishing a business relationship may prevent costly disagreements later.
How Can Penerley Solicitors Help?
At Penerley Solicitors, we understand that disputes between business owners can be particularly challenging because they often involve both financial interests and longstanding personal relationships.
Our commercial dispute resolution team can assist with reviewing agreements, advising on contractual and statutory rights, negotiating settlements and considering appropriate legal remedies.
Whether you are experiencing a disagreement with a business partner, considering a shareholder buyout or seeking advice on protecting your commercial interests, we can help you understand your options.
