Business relationships sometimes breakdown. Difficulties can arise, particularly where there are no documents signed between the parties setting out how a business relationship will be run or the parties’ respective rights and obligations. These disputes may arise within a company, a partnership or a joint venture between two companies.

In the circumstances surrounding the operation of a company, it may be that directors or shareholders take the view that another director is not running the company advantageously or in accordance with their duties, or a shareholder may consider that the company in being run in a way that is unfairly prejudicial to their interest.

Within a partnership relationship, one partner may feel that another is not contributing to the partnership either in terms of time or financial returns.

In the joint venture arena, one company may take the view that another is not performing its obligations under the venture.

Where there are documents in place regulating the relationships, one party may seek to rely on any contractual provisions contained within those documents and the other party will be unable to argue the lack of provisions; although they may say there is no breach. Where there are no documents regulating the relationship, the parties will likely seek to argue an oral agreement or imply matters which have been agreed. This inevitably leads to disagreement.

Frequently Asked Questions

  • What duties does a Director have to a company?

    Whether or not there is a Director’s Service Contract, which will set out the director’s duties, obligations and rights, a director should always act in the best interests of the company, must not compete with the company and must not seek to make a secret profit from the company. In addition to director’s duties which may be included in a company’s incorporation documents, there are also statutory duties set out within the Companies Act. If a director does not act within these bounds then the shareholders/company may seek to remove a director from their position and if the company has suffered loss (for example, because the director has competed and made a secret profit), the company may be able to sue the director to recover the monies.

  • I am a shareholder of the company, but not a Director. I am dissatisfied with the way that the director(s) is running the company. What can I do?

    Quite often in the case of a private limited company a director of a company may also be a shareholder, but not all shareholders will be directors. A director is responsible for the day-to-day running of the company. A director owes a company statutory duties, particularly to promote the success of the company. Since the company is owned by its shareholders, in effect the director must promote the success of the company for the benefit of its shareholders. If you believe a director is running the company in a way which unfairly prejudices your interest as a shareholder then you can apply to the Court under relevant laws for protection. The Court has various powers including requiring the company: (1) to refrain from doing or continuing an act complained of; or, (2) to do an act that you have complained it has omitted to do; or, (3) to provide for the purchase of the shares of any shareholder by another shareholder(s).

  • My business partner in a partnership is not ‘pulling his weight’, what can I do?

    In the absence of a Partnership Agreement setting out the duties, rights and obligations of the partners, then the partnership is governed by relevant laws. These laws regulate how a partnership will be run, including the expulsion of a partner and the termination of the partnership. If there is a Partnership Agreement, this should contain provisions regulating the partnership and how matters of dispute are to be dealt with. We can advise you as to your options either under any Partnership Agreement or under the terms of the law. If the relationship has not irrevocably broken down we would invite your partner to improve his performance. However, if you feel that the relationship has broken down, or there is no improvement, we would seek to bring the partnership to an end, ideally on agreed terms in the first instance, and only resort to litigation if this was not achievable.

  • My business partner has failed to pay income tax on his partnership share and I am now being asked by HMRC to pay it. Is there anything I can do?

    Unfortunately in a partnership, partners are jointly and severally liable for partnership tax so that if your partner has failed to pay tax on his share of partnership profits, you can be made to pay these taxes. However, you can then seek to bring a claim against your partner for an indemnity for the tax you have had to pay on their behalf. If there is a Partnership Agreement, such an indemnity will normally be included within that Agreement, but it might be possible to still assert that an indemnity can be claimed.

  • A shareholder in my company is intending to sell his shares to a third party. The other shareholders wish to prevent this. What can we do?

    Normally, there will be provisions as to the transfer of shares in the company’s Articles. These may not be particularly wide. If there is a pre-emption clause, then the shareholder might be prevented from selling their shares to a third party without first complying with that clause.

    If there is a Shareholders Agreement, it is possible that there will wider provisions as to the sale of shares which must be followed by a shareholder wishing to sell shares. If the shareholder does not follow these provisions, proceedings can be commenced to prevent the shareholder from selling these shares to a third party without first following that procedure. Further the company might be able refuse to register any third party who acquires such shares (without the other shareholder’s consent) as a shareholder.

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