How to resolve a shareholder dispute in a private company

What shareholder disputes are usually about

In most owner-managed companies the shareholders are also the directors and the people doing the work, so a disagreement about the business quickly becomes a disagreement about ownership. Typical causes include one owner feeling they are carrying the business while another contributes less, arguments about taking profits out as dividends or salary rather than reinvesting them, and one owner wanting to sell, raise investment or change direction when the others do not. Others begin with an allegation that a director is diverting business, taking excessive pay or using company money for personal purposes, or when a shareholder is removed from the board, stops receiving information or finds that new shares have been issued that dilute their stake.

These disputes are harder to resolve than most commercial disagreements because the parties remain tied together. While they argue, they still own the company and often still have to run it, and the value of what they are arguing about can fall. In many cases the realistic goal is a fair exit for one side on terms that protect the value of the business, and the legal steps described below are a means of reaching it.

Start with the articles and the shareholders' agreement

Every company has articles of association, which form its constitution. Under the Companies Act 2006, the articles bind the company and its members as if each had agreed to observe them, and they can be changed by special resolution, which needs a majority of at least 75%. Many small companies use the model articles, which contain no rules about compulsory share transfers or what happens when an owner leaves. Others have bespoke articles covering share transfers, rights of first refusal and the position of a shareholder who stops working in the business.

A shareholders' agreement is a private contract between the shareholders, and often the company, that sits alongside the articles. A well-drafted one will already answer many of the questions a dispute raises: which decisions need everyone's consent, how deadlock is broken, whether a shareholder who leaves must sell their shares, how those shares are valued and how disputes are to be resolved. Read both documents before taking any step, together with any service agreements, loan agreements and board minutes. If there is no shareholders' agreement, the articles and the Companies Act 2006 set the rules, and they give a minority shareholder limited protection.

The rights shareholders and directors have under the Companies Act

Voting thresholds determine what each shareholder can do. An ordinary resolution needs a simple majority and a special resolution needs at least 75%. A shareholder with more than half the votes can therefore usually pass ordinary resolutions, including a resolution to remove a director, and a shareholder with more than 25% can usually block special resolutions, such as a change to the articles.

A minority shareholder still has statutory rights. Shareholders holding at least 5% of the paid-up capital that carries voting rights can require the directors to call a general meeting, and the directors must call it within 21 days of the request, for a date no more than 28 days after the notice of the meeting. In a private company, members with 5% of the voting rights, or a lower percentage if the articles allow, can require the company to circulate a written resolution. Every member is entitled to a copy of the annual accounts and reports, and to inspect the register of members on a request that states the purpose for which the information will be used. If it is impracticable to call or hold a meeting in the usual way, a director or a member entitled to vote can ask the court to order a meeting, and the court can direct that one member present is enough to form a quorum.

Shareholders do not have a general right to inspect the company's books. The model articles say that no one is entitled to inspect the accounting or other records merely because they are a shareholder. Directors are in a different position, because the Companies Act 2006 requires the accounting records to be open to inspection by the company's officers at all times. A director who is being kept away from the finances can rely on that right.

The general duties of directors, including the duties to promote the success of the company and to avoid conflicts of interest, are owed to the company rather than to individual shareholders. Where a director breaches those duties, the claim usually belongs to the company, and a shareholder generally cannot sue for the fall in the value of their shares that results. The court routes described below explain how such a claim can be pursued.

Removing a director who is also a shareholder

Shareholders can remove a director by ordinary resolution at a general meeting, whatever any agreement between the company and the director says. The resolution cannot be passed as a written resolution. Special notice is required, which means notice of the intention to move the resolution must be given to the company at least 28 days before the meeting. The company must send a copy to the director, who is entitled to be heard at the meeting and can ask for written representations to be circulated to the members. Some articles give a director's shares extra votes on a resolution to remove them, so check the articles before assuming that a majority can act.

Removal as a director does not take away the person's shares. Unless the articles or a shareholders' agreement require a departing shareholder to sell, they keep their shareholding and their rights as a member. The Act also preserves any claim the removed director has for compensation or damages for the loss of the appointment, and if they are an employee they may have employment claims as well. Excluding an owner from management in a company that was set up on the understanding that each owner would take part is also a common basis for the unfair prejudice petitions described below, so a removal should be planned with the likely response in mind.

When the company is deadlocked

Deadlock is most common in companies owned 50:50, or where the articles or a shareholders' agreement require unanimous decisions. It can arise at board level, where the directors cannot agree, and at shareholder level, where neither side can pass a resolution. Under the model articles for private companies, the director chairing a board meeting has a casting vote if the votes are tied, unless the chair is not counted in that decision under the articles. Some companies with equal owners remove the casting vote, so check the articles.

A good shareholders' agreement will set out a deadlock procedure, such as escalation to a meeting of the owners, mediation, a mechanism under which one side must offer to buy the other's shares or sell its own at a stated price, or a sale of the company. Where there is no procedure, the options are negotiation, mediation or an application to the court. A company that cannot take decisions can lose value quickly, particularly if bank mandates, payroll or statutory filings are affected.

Negotiation, mediation and buy-outs

Many shareholder disputes end with one side buying the other out, a sale of the whole company or an agreed restructuring. Negotiation, usually through solicitors and on a without prejudice basis, is the cheapest way to reach that point. Mediation can be effective because it allows the owners to deal with the commercial and personal issues together in a confidential setting, with an independent mediator helping them towards terms.

Price is usually the main point of disagreement. If the articles or a shareholders' agreement set a valuation method, such as fair value determined by an independent accountant, that method will normally apply. If not, the parties have to agree a value, or the court may decide one in proceedings. Whether a minority shareholding should be valued at a discount to its proportionate share of the whole company is a frequent issue, and the answer depends on the documents and the circumstances, including whether the company was run on the basis that each owner would take part in management.

A buy-out can be structured as a sale to the remaining shareholders or, in some cases, as a purchase by the company of its own shares. A company buy-back must meet strict Companies Act requirements on funding and approval and has tax consequences for both sides, so it needs careful planning. The terms of a buy-out usually cover the price and how it is paid, the departing shareholder's resignation as a director, any employment settlement, the release of personal guarantees they have given for company borrowing, restrictions on competing with the business, and mutual releases of claims.

Unfair prejudice petitions, derivative claims and winding up

If negotiation fails, the Companies Act 2006 allows a member to petition the court on the ground that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of its members generally or of some of them, including the petitioner. This is known as an unfair prejudice petition. Conduct that can support a petition includes excluding a shareholder from management of a company run on the basis that they would take part, diverting business or assets away from the company, and paying some owners excessive remuneration so that no dividends are paid to the others.

If the petition succeeds, the court can make any order it thinks fit for giving relief. The Act gives examples: regulating how the company's affairs are conducted in future, requiring the company to do or stop doing something, authorising proceedings in the company's name, preventing changes to the articles without the court's permission, and ordering the purchase of the petitioner's shares by the other members or by the company. Petitions involve witness evidence, disclosure of documents and often expert valuation evidence, so they are expensive, and they are usually pursued as a route to a fair buy-out when negotiation has failed.

Where a director has breached a duty owed to the company, for example by taking a business opportunity for themselves, the proper claimant is the company. If the directors in control will not bring the claim, a shareholder can bring a derivative claim on the company's behalf, but must apply to the court for permission to continue it, and the claim seeks relief for the company rather than for the shareholder personally.

The most drastic remedy is a petition under the Insolvency Act 1986 to wind the company up on the ground that it is just and equitable to do so. It can be used against a solvent company, for example where the relationship of trust between the owners has broken down completely. The court will not make the order if it considers that another remedy is available and the petitioners are acting unreasonably in seeking a winding up instead of pursuing it, as may be the case where they have refused a reasonable offer for their shares. A winding-up petition can also seriously damage a trading company's relationships with its bank, customers and suppliers, so it needs careful thought.

Protecting your position while the dispute runs

What you do during a dispute can affect how it ends. If you are a director, your duties to the company continue, including the duties to act within your powers, to promote the success of the company and to avoid conflicts of interest. Taking company money, customers, data or opportunities, even if you believe you are owed them, can give the other side a claim against you and weaken your own case. Changing bank mandates, cutting off another director's access to systems or issuing new shares without proper authority can be challenged later and can itself be evidence of unfair treatment.

Keep a record of board and shareholder decisions, and of the information you have asked for and received. Put requests for information and meetings in writing, and use the statutory rights described above where they apply. Take care with emails and messages to employees, customers and the other shareholders, because a court may read them later. If you are also an employee, take advice before resigning or agreeing to leave, because the terms of your departure can affect both your employment rights and what happens to your shares.

Preventing the next dispute

Most of the expensive questions in a shareholder dispute can be settled in advance. A shareholders' agreement made while the owners get on can set out who decides what, how deadlock is broken, what happens when an owner leaves or dies, how shares are valued and how disputes are resolved. Reviewing the articles at the same time makes sure the two documents work together, and each owner's will should deal with their shares in a way the agreement allows.

If a dispute has already started, we can review the articles, any shareholders' agreement and the company's records, explain your rights and options, and represent you in negotiation, mediation or court proceedings. We act for majority and minority shareholders, and we agree the scope of the work and the cost with you in writing before we start.

Frequently asked questions

What is an unfair prejudice petition?

An unfair prejudice petition is an application to the court by a shareholder under section 994 of the Companies Act 2006, on the ground that the company's affairs have been conducted in a way that is unfairly prejudicial to their interests as a member. If it succeeds, the court can make any order it thinks fit, including regulating how the company is run or ordering the other shareholders or the company to buy the petitioner's shares. Petitions are expensive, so they usually follow a failed attempt at negotiation or mediation.

Can the majority shareholders remove me as a director?

Yes, shareholders with a majority of the votes can usually remove a director by ordinary resolution at a general meeting, even if the director has a service agreement. Special notice must be given to the company at least 28 days before the meeting, and you are entitled to be heard and to have written representations sent to the members. Check the articles for any weighted voting rights. Removal does not take away your shares, and you may have claims for compensation, including under an employment contract.

Can I be forced to sell my shares?

Only if the articles, a shareholders' agreement or a court order requires it. Many shareholders' agreements contain compulsory transfer provisions, for example when a shareholder stops working in the business, and drag-along rights that require minority shareholders to join a sale approved by a set majority. Without provisions like these, a majority cannot simply force a minority shareholder to sell, although a court can order a share purchase on an unfair prejudice petition.

What happens if a company owned 50:50 is deadlocked?

If there is a shareholders' agreement with a deadlock procedure, follow it first, and it may lead to mediation, a buy-sell mechanism or a sale of the company. If there is no procedure, the owners need to negotiate or mediate a solution, which is usually a buy-out. The court can order a meeting where it is impracticable to hold one otherwise, and in serious cases a shareholder can petition for unfair prejudice or for the company to be wound up on just and equitable grounds.

How are shares valued when one shareholder buys out another?

The starting point is any valuation method in the articles or the shareholders' agreement, such as fair value set by an independent accountant. If there is none, the price is negotiated, usually with the help of a valuation of the whole company. Whether a minority stake should be discounted because it lacks control depends on the documents and the circumstances, including whether the company was run on the basis that all the owners would take part in management.

Can I see the company's accounts and records as a shareholder?

Every shareholder is entitled to receive a copy of the company's annual accounts and reports, and to inspect the register of members on a request that states the purpose for which the information will be used. Under the model articles, being a shareholder does not in itself give you a right to inspect the accounting records. Directors do have that right, because the records must be open to inspection by the company's officers at all times, and a shareholders' agreement can give shareholders wider information rights.

Sources & further reading

• legislation.gov.uk — Companies Act 2006, section 994: petition by company member
• legislation.gov.uk — Companies Act 2006, section 996: powers of the court
• legislation.gov.uk — Companies Act 2006, section 168: resolution to remove director
• legislation.gov.uk — Companies Act 2006, section 303: members' power to require a general meeting
• legislation.gov.uk — Companies Act 2006, section 260: derivative claims
• legislation.gov.uk — Insolvency Act 1986, section 122: winding up by the court
• legislation.gov.uk — The Companies (Model Articles) Regulations 2008, Schedule 1

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).