Going Into Business with a Loved One? Don’t Dispense with Legal Formality

Couples who run businesses together are often tempted to dispense with paperwork and rely solely on trust. As a High Court ruling showed, however, any relationship may come to an end, leaving both sides wishing they had taken a more formal approach at the outset.

The case concerned a couple whose relationship lasted for about 18 years before ending unhappily. Whilst they were together, they established a company through which a buy-to-let property was purchased. She provided finance and administrative services whilst he was responsible for refurbishing the property.

They each had a 50 per cent stake in the company, which was a joint venture taking the form of a quasi-partnership. However, their business relationship was never the subject of a formal shareholders’ agreement. Neither of them had a written contract governing their roles as directors or the terms on which the company employed them.

Despite the end of their relationship, they remained uncomfortably locked together in the business. Each of them accused the other of excluding them from the company’s management and acting to its detriment. She lodged a petition under Section 994 of the Companies Act 2006, asserting that he had taken steps which unfairly prejudiced her position as a shareholder.

Ruling on the matter, the Court rejected a number of her allegations. In upholding her petition, however, it found that he had in some respects impeded the smooth running of the company and acted in a way that was potentially detrimental to its success. His counterclaim, in which he made similar allegations against her, was dismissed.

Subject to hearing further submissions, the Court proposed an order whereby he would be removed as a director of the company and she would be entitled to buy out his shareholding at a price to be fixed by an expert valuer. She would be given credit for over £200,000 owed to her by the company on her director’s loan account. The Court hoped that its decision would enable the former couple to draw a line under their disputes and make a fresh start.