The recent budget contained some encouraging measures for entrepreneurs and small businesses with an increase in trading allowance, backing of young and female founders, introduction of a founders’ relief and expanding business rates support, sending a clear message that the government wants to make it easier to start and grow a business in the UK.
However, for many business owners, the headline support will be tempered by the reality of rising costs. Higher wage bills and increasing employment costs continue to put pressure on margins, particularly for smaller businesses.
The challenge for many businesses is ensuring that the benefits of the government’s measures are felt in practice. Whilst disputes between business owners can arise in periods of stability and instability, wider market instability can influence the dynamics and relationships of business owners.
In periods of stability, profitability and steadiness of business direction and growth can often dampen down the difference in opinion of owners as to business strategy, and perhaps even influence the day-to-day governance and actions of individual owners.
When external factors such as market instability are apparent this can highlight the internal ructions and lead to a general break down in the trust and confidence between owners.
Shareholder disputes tend to rise during periods of economic pressure, particularly as some shareholders may feel that the company’s affairs are being conducted in a manner that is unfairly prejudicial to their own interests. As a result, disputes concerning Unfair Prejudice become more common.
In our earlier blog “What are unfair prejudice petitions and who can bring the petition?” we discuss in more detail what an Unfair Prejudice claim entails, and the conduct between shareholders that may amount to such.
Similarly, Partnership disputes gain traction, as disagreements may arise as to management, contributions, and profit share. Partners may also become concerned as to how economic factors can affect their retirement plans, which can lead to disputes concerning exit provisions or even premature exit proposals,
How can I manage wider market pressures and minimise the risk of disputes?
Partnership and Shareholders’ Agreements, which are legally binding contracts, are essential for preventing misunderstandings and disputes between owners. Whilst many businesses will have them from the outset, in periods of economic uncertainty where wider market factors have the capacity to influence individual owner’s actions, it is important to ensure and document the defined roles, responsibilities and expectations of individual owners, to ensure that if something does go wrong, the processes for resolving disputes are clearly laid out, to avoid the unnecessary time and costs of litigation.
In our earlier blogs “What is a partnership agreement?” and “Why do I need a shareholders’ agreement” we discuss the importance of having adequately prepared Partnership and Shareholders’ Agreements.
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