Civil & Commercial

The legal position and the personal history are rarely the same problem.

Partnership and shareholder disputes, director disagreements and business breakdowns, where the relationship and the money have become impossible to separate.

Discuss a business dispute Call 0843 636 7687

What the agreement actually says

Partnership and shareholder disputes usually turn on documents nobody has read closely since they were signed: a partnership agreement, articles of association, or a shareholders agreement. These set out what happens on disagreement, from voting rights and drag-along or tag-along clauses to how a partner or director can be removed. Before anything else, the starting point is establishing what was actually agreed, not what anyone remembers agreeing.

Unfair prejudice and minority protection

A minority shareholder who is being frozen out, excluded from decisions, or treated unfairly compared to other shareholders may have a claim for unfair prejudice under the Companies Act 2006. Remedies can include an order that the majority buy out the minority shareholding, often at a valuation set by the court rather than agreed informally.

Deadlock is a specific problem

Where a business has two equal partners or shareholders who can no longer agree, ordinary dispute remedies may not fit. In genuine deadlock, the practical question is often not who is right, but how the business gets unwound or one side gets bought out without destroying its value in the process.

Fiduciary duties

Partners and directors owe duties to act in good faith and in the interests of the business, not to profit personally at its expense, and to avoid conflicts of interest. Where those duties have been breached, whether through diverting business, misusing confidential information, or simple self-dealing, that breach can be a claim in its own right, separate from the wider dispute.

Getting to a resolution

Most of these disputes are better resolved than litigated to the end, since a business that survives a legal win but not the process is not much of a win. Mediation, a negotiated exit, or a share purchase agreement often achieves more than a judgment, though the credible threat of court proceedings is usually what gets the other side to negotiate seriously in the first place.

Company & partnership disputes

Unfair prejudice, shareholder exits and partnership breakdown

A company member may petition under section 994 of the Companies Act 2006 where the company's affairs are being conducted in a manner that is unfairly prejudicial to the interests of members generally or to some part of them, including the petitioner. If a petition succeeds, section 996 gives the court broad powers to fashion relief, including regulating the company's affairs and, in an appropriate case, ordering a share purchase.

O'Neill v Phillips [1999] UKHL 24 remains a leading authority on unfair prejudice. It emphasises that “unfairness” is applied judicially: the court starts with the legal rights and agreements between the parties but can also recognise equitable constraints in relationships where personal understandings, mutual confidence and participation in management make strict reliance on legal powers unfair.

Partnership disputes are governed by the partnership agreement, if there is one, and the Partnership Act 1890. Section 35 permits the court to decree dissolution in specified circumstances, including persistent breach of the partnership agreement or where circumstances make dissolution just and equitable. The commercial solution may instead be a negotiated exit, account, valuation or injunction preserving assets and records.

Key sources: Companies Act 2006 ss994–996; Partnership Act 1890; O'Neill v Phillips [1999] UKHL 24.

Frequently asked questions

What is unfair prejudice?
It is conduct of the company's affairs that is both prejudicial to a member's interests and unfair in the legal sense. Examples can include exclusion from management in a quasi-partnership, diversion of business or assets, improper remuneration, withholding information or breaches of agreed understandings, depending on the facts.

Can the court make the other shareholder buy me out?
Yes, a share-purchase order is a common form of relief in a successful unfair-prejudice case, but it is not automatic. The court has a broad statutory discretion and valuation can itself become a major issue.

Will a minority discount apply to the share valuation?
Not necessarily. O'Neill records that in the relevant quasi-partnership context fair value will ordinarily be assessed pro rata without a minority discount, although special circumstances can justify a different basis.

Can a director be removed?
There are statutory and contractual routes to remove a director, but removal can create separate shareholder, employment or unfair-prejudice consequences. The articles, shareholders' agreement and Companies Act procedure should be checked before action.

Can the company itself bring the claim?
Some wrongs are suffered by the company rather than the individual shareholder. A derivative claim or other company remedy may then be relevant instead of, or alongside, personal shareholder rights.

Can the court freeze assets or stop transactions while the dispute is ongoing?
Potentially. Interim injunctions may be available where the legal test and evidence support urgent protection of assets, shares, records or the status quo.

What if there is no written partnership agreement?
The Partnership Act 1890 can supply default rules, but the parties' conduct and any oral or implied agreement may also matter. A breakdown should be analysed before one party assumes they can simply take the assets or walk away.

Should we mediate before issuing proceedings?
Often yes. A negotiated buyout, valuation mechanism or separation can preserve more value than prolonged litigation. Courts also expect parties to engage sensibly with ADR and can take unreasonable conduct into account on costs.