How to Manage Partnership and Shareholder Disputes

In business, disputes can arise at all levels. When ownership and control are at stake in disputes amongst partners, directors and shareholders, there are robust legal processes for different kinds of ownership structures to resolve partnership and shareholder disputes.

When a dispute arises amongst high level figures in a business it can jeopardise the continued success of the enterprise, so it’s important to resolve them quickly and smoothly.

Types of business partnership disputes

There are two main types of partnership disputes: breaches of partnership and breaches of fiduciary duty.

A breach of partnership is when a partner believes another to have failed to adhere to their partnership agreement.

A breach of fiduciary duty is when a partner is considered to have acted in a way that has jeopardised the financial health of a business, or mismanaged money in some way.

What are shareholder disputes?

Shareholder disputes are disputes that arise between those who own shares in a business. These can include disagreements over business decisions, claims brought on behalf of the company for unlawful mismanagement and similar claims, or resolving disputes shareholders who both hold 50% of the shares, preventing the business from moving forwards due to the impasse.

How to resolve partnership disputes

Partnership disputes can be more easily resolved if there is an existing partnership agreement document which clarifies roles and responsibilities. If there is not one in place, then the Partnership Act 1890 will come into effect and govern the rights of each partner, usually just dividing potential profit equally. A partnership disputes lawyer would be able to explain the impact of this in specific business arrangements.

How to handle disputes in a 50/50 partnership

Shareholder disputes between two parties with equal shares can be complex. Both parties should seek legal advice and begin a dispute resolution process. This will take the form of mediation, arbitration or alternate dispute resolution, with the aim of avoiding lengthy and expensive court proceedings, a far less cost-effective solution.

Similar to partnership disputes, a shareholder agreement should already have been in place, establishing roles and processes specific to the business. If there is not one in place, then the Companies Act 2006 will come into effect. The dispute may be resolved via share buybacks to break the deadlock, or further negotiation.

If a dispute reaches court, then courts can order the sale of shares, enact injunctions, or even wind up the company, so it’s best to try and resolve a situation amicably.

DFA Law are well placed to assist in both partnership and shareholder disputes. Find out more about our business dispute resolution services.