Corporate conflict between partners: how to protect the business and find a solution

A corporate conflict rarely starts with a lawsuit. First the partners stop agreeing on spending, withhold information, block decisions or accuse each other of siphoning off funds. If the disagreements are not settled in time, the company can lose clients, key staff, assets and the ability to operate normally.

Below we look at how owners should act during a conflict and which mechanisms are worth putting in place in advance.

What a corporate conflict is

It is a dispute between participants, shareholders, the director or other persons who influence how the company is run.

Partners most often cannot agree on:

• distribution of profit and dividends;
• financing the business;
• the director’s powers;
• signing major contracts;
• selling property;
• bringing in a new investor;
• hiring or dismissing key staff;
• access to financial information;
• selling a share or leaving the business.

A separate risk arises when a de facto partner is not registered as a participant in the company. An agreement on “half the business” does not in itself always create corporate rights. So you need to establish who legally owns the shares, property, trademark, domain, equipment and other assets.

Signs that the conflict already threatens the business

The following may show that ordinary disagreements have turned into a corporate conflict:

• general meetings or important decisions are blocked;
• financial and corporate documents are withheld;
• passwords to online banking, the CRM, email or accounting systems are changed;
• payments are made without the other partner’s consent;
• contracts are signed with related parties;
• attempts are made to replace the director or change the participants;
• clients, staff or assets are moved to another company;
• a parallel business is set up;
• there is a dispute over profit distribution;
• there are threats to “block the company” or “move everything to a new legal entity”.

At this stage verbal negotiations are no longer enough. You need a plan of action that is sound both legally and financially.

Why a 50/50 structure is especially dangerous

Splitting shares equally seems fair, but without special rules it risks corporate deadlock.

If one partner supports a decision and the other opposes it, the company may lack the votes to:

• appoint or replace the director;
• approve the budget;
• raise financing;
• approve a material transaction;
• amend the charter;
• distribute profit;
• sell the business.

The conflict itself does not stop the company’s activity. But the inability to make decisions gradually paralyses management. It is hardest when one of the partners is also the director and controls the accounts, documents and digital infrastructure.

What to do once the conflict has started

Step 1. Establish the legal picture

Collect and analyse:

• the charter;
• the corporate agreement, if one was signed;
• the ownership structure;
• minutes of general meetings;
• contracts with the director and key officers;
• financial statements;
• bank signing authorities;
• title documents for property;
• agreements on trademarks, software and other intellectual property;
• documents confirming each partner’s contributions.

Separate the company’s property from the participants’ personal property. The fact that one partner paid for an asset does not make that asset his or her personal property.

Step 2. Check who actually controls the business

Find out who has access to:

• bank accounts;
• qualified electronic signatures;
• the accounting system;
• corporate email;
• the CRM and client base;
• the domain and website;
• advertising accounts;
• HR documents;
• original contracts and minutes.

Do not unilaterally block another participant’s work, take documents or use someone else’s electronic signature. Protective measures must be formalised by lawful corporate decisions and must not stop the company’s operations.

Step 3. Preserve documents and evidence

If there is a risk of assets being moved out or information being concealed, keep:

• bank statements;
• contracts and supplementary agreements;
• accounting documents;
• email correspondence;
• minutes of meetings;
• documents on related companies;
• confirmation of transfers of money or property;
• backups of corporate data.

A participant in a limited liability company (LLC, TOV) has the right to information about the company’s activities. At the participant’s written request, the executive body must provide copies of the documents the company is required to keep within 10 days of receiving the request (part 5 of Article 43 of the Law of Ukraine “On Limited and Additional Liability Companies”).

Step 4. Check the director’s powers

Find out:

• which contracts the director can sign alone;
• which transactions require a decision of the general meeting;
• whether there are restrictions on disposing of property;
• how loans, borrowings, guarantees and sureties are approved;
• whether interested-party transactions are regulated.

The law allows the charter to set its own criteria for material transactions and the procedure for approving them (Article 44 of the LLC Law), while interested-party transactions are governed by Article 45. This creates an extra layer of control over transactions that could significantly affect the business.

Step 5. Give the negotiations a structure

Negotiations should focus not on mutual accusations but on specific questions:

1. Who is responsible for what?
2. Which decisions are blocked?
3. What is the business worth?
4. Is one of the partners ready to sell his or her share?
5. Can the assets or lines of business be divided?
6. How will the company operate while negotiations continue?

For this period it is worth agreeing temporary rules in writing: payment limits, the procedure for approving contracts, retaining staff, a ban on poaching clients and non-disclosure of confidential information.

An independent mediator can be brought in to settle the dispute. Mediation is a voluntary out-of-court procedure, governed by the Law of Ukraine “On Mediation”.

Possible solutions

The option depends on the causes of the conflict and the company’s financial position.

Redistributing powers

The partners remain co-owners but agree in writing on areas of responsibility, budget limits, control procedures and a list of decisions taken only jointly.

Buying out a share

One participant buys out the other’s share. The key issues are an independent valuation of the business, a payment schedule, payment guarantees, handover of affairs and ending access to corporate systems.

When a share is sold, the pre-emptive right of the other participants (Article 20 of the LLC Law), the charter requirements and the statutory procedure must be taken into account.

A new investor

A third party may buy out one partner’s share or finance the company in exchange for a stake. Before the deal, the business should be checked legally and financially (see our article on due diligence before buying a business).

Splitting the business

If the company has several independent lines of business, the partners may agree to hand separate assets to each of them or to set up independent businesses. Such a solution requires tax, corporate and contractual planning.

Going to court

Going to court is justified if corporate rights have been violated, the director or participants have been unlawfully changed, property has been disposed of, documents have been concealed or the company has suffered losses.

Depending on the situation, you can seek to have decisions of the general meeting declared invalid, registration actions cancelled, a share recovered, losses compensated or interim measures applied.

Do not delay: for claims to declare a decision of a company’s general meeting invalid, the Civil Code sets a special limitation period of one year (item 8 of part 2 of Article 258 of the Civil Code of Ukraine).

What not to do during a conflict

Owners should not:

• move assets to related companies;
• forge minutes or backdate them;
• use another person’s qualified electronic signature;
• destroy correspondence and financial documents;
• block the company’s work without legal grounds;
• move clients and staff to a new company;
• spread unverified accusations;
• sell a share without checking the other participants’ pre-emptive rights.

Such actions weaken your negotiating position and may lead to civil, administrative or criminal liability.

How to prevent a corporate conflict

The best protection is put in place before any dispute arises. Provide for:

• a detailed charter adapted to the actual business;
• a corporate agreement;
• a list of decisions taken only jointly;
• limits on the director’s powers;
• rules for dealing with related parties;
• procedures for access to reports and documents;
• a procedure for valuing and selling a share;
• a mechanism for breaking a 50/50 deadlock;
• rules for a partner leaving the business;
• consequences of a participant’s death, incapacity or long absence;
• who owns trademarks, domains and software;
• protection of confidential information;
• a ban on poaching clients and staff within the limits permitted by law.

The law expressly allows LLC participants to conclude a corporate agreement setting out how they will exercise their rights and powers (Article 7 of the LLC Law).

Conclusion

A corporate conflict affects more than the partners’ relationship: the company’s assets, management, staff, clients and reputation are all at stake.

The owners’ task in this situation is to keep the business manageable, record the actual state of affairs, prevent assets from being moved out and choose a realistic scenario. That may be restoring cooperation, redistributing powers, buying out a share, splitting the business or going to court.

Legal framework

• Law of Ukraine No. 2275-VIII “On Limited and Additional Liability Companies” — Art. 7 (corporate agreement), Art. 20 (participant’s pre-emptive right), part 5 of Art. 43 (providing copies of documents to a participant within 10 days), Art. 44 (material transactions), Art. 45 (interested-party transactions)
• Civil Code of Ukraine — item 8 of part 2 of Art. 258 (one-year limitation period for claims to invalidate a decision of the general meeting)
• Law of Ukraine No. 1875-IX “On Mediation”

ARGUS Consulting group analyses corporate structures, assesses risks for owners, supports negotiations between partners and designs mechanisms to protect the business. The earlier a settlement starts, the better the chances of saving the company and avoiding a long court dispute. See legal support for business and business security audit.

This material is for information only and is not individual legal advice. Legal framework as of 22.10.2026.