Deadlocks and Disputes in Business

Not all business relationships last.

In a partnership, sometimes one partner will want to retire, or just move on to do other things.  Sometimes partners fall out and your business finds itself in a deadlock and dispute situation.

In a company scenario, it is much the same.  Sometimes it may just be that someone just wants to leave or retire.  At other times the people who are shareholders and/or directors may have fallen out, or (in a reasonably amicable way) just have very different views about the way the business should go forward. 

So what happens then?  What do you do?

If there are outside investors – say angel investors or maybe venture capital – then this has probably been dealt with.  If someone, who is not an outside investor, wants to leave, the company’s Articles of Association will probably set out what is to happen.  The leaver will probably have to offer their shares for sale.  They may even have to sell them at a discount.

But what about other situations?  What if you simply can’t agree on how the business should be run, or the direction it should go, or worse, what if your relationship has simply broken down?

The short answer is probably that you have to find some way to agree to go your separate ways.  Often that is going to mean those on one side finding a way to buy out the other.  It’s not always easy. 

If relationships are fraught, those fraught relationships will come into it too, and won’t help. 

One problem often is that the sums needed for one side to buy out the other may not be easily found.  If you are lucky and have profits which have been retained in the company, then you may be able to use those.  If you can, this is often the best way.  If you don’t, an element of deferred payment may help: so you agree to pay out the person or people who are leaving over a period of time. 

Occasionally, it may be possible:

• To bring someone new into the business, who will put up the funds that will enable the person leaving to be paid out.
• Sometimes you may even have to split the business up.  There are ways of doing this. 
• Selling the business as a whole may also be an option (though rarely used).

But on the whole (alas) there are few legal quick fixes. 

If things are really bad, the law, it is true, provides a few options. 

For example, it may be possible for one shareholder to take action for what is called “unfair prejudice”.  There are others. But none are straightforward, and they are not cheap.

It is better therefore to reach an agreement before it gets that far. Deadlocks and disputes can arise, but when they do, the quicker they can be sorted the better.

If your business needs advice and support, please contact Adrian Chaffey, a specialist Corporate Lawyer in the team at Kerseys Solicitors in Ipswich on tel:01473213311 or Kerseys Solicitors in Colchester on tel:01206584584 or email us at [email protected], alternatively you can visit our web site and click “Call Me Back” and a member of our Commercial team will be happy to contact you.