Handling boardroom disputes in owner-managed businesses: How to protect the business when relationships break down

Owner-managed companies often rely on a small number of individuals who may hold multiple roles, such as a director, shareholder or employee, all at the same time. This overlap can be efficient while relationships are working well, but it can create serious practical and legal difficulties when disagreements arise.

When a dispute arises in an owner-managed business, the immediate problem is often uncertainty. Who has the authority to make decisions, what happens if directors are deadlocked, and how can the business keep operating while personal and commercial relationships are under strain?

This article explains why boardroom disputes escalate quickly, what legal issues commonly arise, and what practical steps can help protect the business before the dispute becomes rooted.

Why boardroom disputes escalate quickly

In a larger corporate structure, a dispute may be limited to one role or relationship. In an owner-managed business, the same person may be wearing several hats at once. That means one disagreement can affect company management, share ownership, employment rights and personal finances at the same time.

Common pressure points include:

• Loss of trust between directors or shareholders;
• Deadlock over business strategy, funding or succession;
• Concerns about access to company information;
• Allegations that a director has prioritised personal interests;
• Family or personal relationships making commercial decisions harder; and
• Uncertainty over whether someone is acting as a director, shareholder, employee or all three.

If these issues are not managed carefully, the business may face disruption, reputational damage and the cost of formal legal proceedings.

Directors’ duties: who must act in the company’s interests?

Directors owe statutory duties to the company under the Companies Act 2006. In practice, disputes often arise when one director believes another has exceeded their authority, acted outside the company’s constitution, failed to promote the company's success, or allowed a personal interest to influence decision-making.

The company's Articles of Association may help in these situations by setting out decision-making procedures, such as a chair’s casting vote or delegated authority. However, if trust has already broken down, the parties may need to consider formal remedies, including:

• Claims for breach of directors’ duties;
• Removal from office;
• Injunctive relief to prevent certain action; and
• Shareholder authorisation of conduct in appropriate circumstances.

Because directors may also hold a shareholder or employee position, any proposed step should be carefully considered before taking action.

Shareholder disputes: What protection does a minority shareholder have?

Conflicts between majority and minority shareholders are common in owner-managed companies. Typical issues include exclusion from management, disputes over dividends, reduced access to information, disagreements over business direction or concerns that the company is being run for the benefit of some shareholders but not others.

Depending on the facts, minority shareholders may have various statutory remedies available under company and insolvency legislation.

A well-drafted shareholders’ agreement is crucial for reducing the risk of escalation by setting clear rules for consent rights, voting thresholds, deadlock procedures, and compulsory share transfers.

Employment issues: what happens if a director is also an employee?

Removing someone as a director does not automatically end their employment. Where an individual has dual roles, the business must consider both company law and employment law before taking steps such as suspension, dismissal, settlement or changes to duties.

Issues that often require careful handling include:

• Grievance and disciplinary procedures;
• Notice entitlements and termination payments;
• Dividends, bonuses and benefits in kind;
• Settlement agreements and exit terms; and
• Post-termination restrictive covenants

Taking action without considering the employment position can lead to claims and make the wider boardroom dispute more complex and harder to resolve.

How to reduce disruption and resolve disputes early

The most effective approach is usually to identify the legal roles involved, check the company’s constitutional and contractual documents, and consider proportionate dispute-resolution options before positions become fixed.

Practical steps may include:

• Reviewing the articles of association and any shareholders’ agreement;
• Checking decision-making thresholds and deadlock provisions;
• Recording board and shareholder decisions properly;
• Considering mediation or other dispute-resolution procedures;
• Protecting company information, assets and trading relationships; and
• Seeking legal advice before removing a director, excluding a shareholder or terminating employment.

Early advice can help clarify the available remedies, reduce the risk of procedural errors, and support a strategy that protects the business's commercial value.

Speak to our Commercial Law Team

If a boardroom or shareholder dispute is affecting your business, or you want to strengthen your governance documents before problems arise, Simon Porter and our commercial team can help you understand your options and take practical next steps.

Call us on 023 8063 9311 or email enquiries@warnergoodman.co.uk to discuss your situation.