March 15, 2022
Sometimes, however, business partners will have a breakdown in their relationship which is so serious that they cannot bear to work together any longer.
When business partners reach a point where their relationship is irreparable, it’s likely that at least one of them will want to exit the business as soon as possible.
For the sake of the business, the sooner the dispute is sorted out the better. This situation will not only affect the relationship between the business partners but, ultimately, it will affect staff and may eventually spill over into client and customer relationships.
Business owners who find themselves in this situation often ask the same kind of legal questions, including the following:
Can I just resign as a director/employee and leave?
The answer to this question will depend on the wording of any directors’ service contract or contract of employment. You may be contractually obliged to give a certain period of notice, and this will be specified in the contract. However, if there are no such contracts, you are probably free to resign and leave at any time.
If I resign as a director/employee, can I make a claim against the business or my former business partner?
Depending on the circumstances, you may be able to claim damages for constructive dismissal as an employee and “loss of office” as a director. However, it is important to obtain legal advice before taking any steps to resign so that you preserve whatever legal rights you have.
Once I have resigned will I be able to set up a competing business and poach staff and clients from my old business?
This will depend on the wording of any contracts you have signed. Relevant contracts will include employment and director’s service contracts. Also, if you have signed a partnership agreement, shareholders’ agreement or members agreement (LLP), then you will need to check the wording of any relevant clauses. In the case of a limited company, you will also need to check the provisions of the company’s articles.
Can I use confidential information from my old business in my new business?
Again, what you are entitled to use in your new business will depend on the wording of any contracts you have entered into. However, if there are no such contracts in place then, generally speaking, the only thing that you will not be entitled to use in your new business are the “trade secrets” of your old business.
In the case of a limited company, can I keep my shares even if I resign as a director?
The answer to this question will generally be found in the company’s articles and also any shareholders’ agreement that you have signed. If there is no shareholders agreement and the company’s articles are silent on the point, it may be difficult for the other party to force you to hand your shares back or force you to sell them. However, this is a complicated area of law and, depending on the circumstances, it may be possible for the continuing business partner to obtain a court order forcing the outgoing shareholder to sell their shares back.
Should I try to agree something with my business partner?
It is always worth trying to resolve a business dispute amicably, without recourse to legal proceedings. However, timing may be an issue. Warring business partners may well not be in the mood to negotiate whilst feelings are running high – it often takes the reality of lengthy and expensive legal proceedings to bring people to their senses.
The issues raised in this article are for illustrative purposes only and are no substitute for legal advice.
If you have any queries about the above or another related matter, please contact our Stephen Thompson on sthompson@darwingray.com or 07970 160166.
