Partnership and company disputes operate under very different legal frameworks due to the intrinsically different nature of both entities.
Traditional partnerships are driven by the relationship between partners, who are also seen as agents of each other and the firm. If there is no tailored partnership agreement, the profits are generally shared equally unless agreed otherwise, and they share equal management rights.
Companies, on the other hand, have a separate legal personality, and disputes are handled through corporate governance methods such as board meetings, shareholder votes, and statutory remedies under the Companies Act 2006. Within a company, diverse roles, powers, and responsibilities, create a general framework of regulation and procedural rules.
Common grounds of dispute
Partnership disputes typically revolve around the following issues:
- Profit shares and each partner’s respective contributions
- Authority and decision-making powers
- Dissolution and asset division
Disputes concerning authority and agreements are particularly common because partners often hold greater power as agents. The nature of partnerships rely highly on trust and mutual confidence as any partner has the capacity to create liabilities for the entire firm. Furthermore, the partnership agreement makes it very hard to remove a partner. Therefore, conflict usually escalates into dissolution or exit disputes.
Company disputes, on the other hand, often concern the following:
- Exclusion from management
- Allegations of breach of directors’ duties
- Remuneration and dividend policies
The separation between ownership and management creates disputes related to control, as shareholders possess ownership and economic rights over the company, while directors exercise management and control. Disputes commonly arise between these two parties if shareholders do not feel involved in executive decisions, if directors act in favour of personal interests in breach of their fiduciary duties, or if a majority shareholding uses voting powers to monopolise company decisions.
Compared to partnerships, company disputes are process and formality-focused due to decisions generally made through formal mechanisms. The provisions for removal and appointment of directors also make it easy to make changes to the structure of the board through constitutional processes, such as board meetings, resolutions and votes.
Preventative measures for disputes
For partnerships, it is important to set out tight agreements from the point of initial formation, covering main areas such as authority, provisions for profit shares and contribution, expulsion and dissolution.
Companies benefit from clear governance rules and mechanisms for share transfer, appointment and expulsion, remuneration and shareholder-director relationships, if it is to avoid expensive statutory claims and facilitate early-stage resolution within the company.
At Nath Solicitors, we provide legal expert advice on company and shareholder matters. If you need assistance, please call us on 0203 983 8278 or email us at enquiries@nathsolicitors.co.uk.