No more mucking around – the risks involved with not having a shareholder agreement in place for the family farming business

Many family farming businesses operate under a sole trader or a partnership. However, the number of these businesses operating through limited companies has been on the rise, especially those which have been diversified into other commercial routes.

Those companies which have been incorporated will have articles of association in place. An article of association is a company’s rule book and a public document which is filed at Companies house.

An instrumental document, where there are multiple shareholders, that most companies don’t have in place is a shareholder agreement. A shareholder agreement is a private contract between the shareholders that safeguards their interests in the company and sets out additional detail on how the business will be managed.

For further information on shareholder agreements, please visit Fix your roof whilst the sun is shining – 10 top tips for legal planning to set up your business for success, authored by Ben Johnson of JMW Solicitors.

How can a lack of such agreements lead to a dispute in the farming family business?

Farming family companies are different to that of a usual company. Unlike other companies which involve people outside the family, who join or start a company for a commercial venture. These companies involve close family members who work either on the farm or do related works for the farm, such as a related family farm shop or glamping.  

Decisions in these companies are just as much about the family as they are about management. As a result, expectations are high, which can lead to a risk of misalignment. Disputes can arise when sensitive subjects come up such as director remuneration, reinvestments, dividends and drawings. This alongside complicated family relationships between parent and child, siblings or other family dynamics and a poorly drafted or lack of agreement in place could lead to a costly dispute.

Disputes brought about by a lack of shareholder agreement

Unfair Prejudice – a shareholder related dispute

In such family companies, especially where there is a lack of well-defined arrangements, there will be disagreements about management, compensation, control and more so when minority shareholders are kept in the dark in relation to these matters. Common examples include:

• Where there is a sibling who is more present on the farm than another, due to this they make such decisions such as drawing a larger director’s salary and the other receives little to no compensation despite holding shares.
• Decisions which are forced through on the businesses diversification, such as capital policy on related business’s involved within the family business like the family farm shop mentioned above. 
• Refusing access to company related information such as bank accounts, preventing a shareholder the ability to assess the health of a company and their rights.

What is available to a shareholder in such circumstances

Under Section 994 of the Companies Act 2006, shareholders are provided with the protection of unfair prejudice. It allows shareholders to petition the court when company affairs are managed in a way which is unfairly prejudicial to shareholders (usually a minority shareholder), often resulting in a shareholder being treated unjustly by another shareholder (usually a majority shareholder).

To be able to have a basis of claim, shareholders will need to prove that company affairs are being or have been conducted in a manner that is unfairly prejudicial.

There are remedies in such circumstances. The court can order for the majority to purchase the minority shares at a fair buyout price, make an order preventing future conduct or order compensation.

The shareholder bringing the claim to the court should bear in mind the topic of limitation periods. The very recent significant judgement in THG v Zedra [2026] UKSC provided that unfair prejudice is not subject to a limitation period. Despite this ruling, minority shareholders should still be quick to act and not fall into the trap of unreasonably delaying a petition, as this could result in a dismissal.  

For further information on unfair prejudice and the THG V Zedra Supreme Court judgement, please have a read of UK Supreme Court has decided that there is no statutory limitation period for an Unfair Prejudice Petition: THG Plc V Zedra Trust Company (Jersey) Limited [2026] UKSC, authored by Claire Brown and Lucy Ayoubi of JMW Solicitors.

How a shareholder agreement could prevent disputes in farming family companies

A well drafted shareholder agreement could include provisions to properly govern how a company is managed, this could include any of the following:

• Rules on reserved matters which require unanimous or high majority consent from shareholders.
• Preventing directors from acting against the interests of the shareholders.
• How the business deals with departing shareholders.
• How dividends are to be declared.

If your farming family business is run through a more traditional route such as a general partnership, there can still be protection in place by a well drafted partnership agreement to cover similar provisions as mentioned above.