Family farm and the family firm: When sibling rivalry becomes unfair prejudice
The family farm is often both a business and a legacy. In many cases, that business is now run through a limited company which may sit alongside partnerships, tenancies, contract farming agreements and land-owning arrangements that may predate the incorporation of the company by decades. When relationships sour, most often between siblings or between generations, the blend of family dynamics, ill defined expectations, and corporate law can quickly produce disputes that are costly, destabilising and deeply personal. In this week’s Field Notes we consider how disputes in family agri business companies may arise, what “unfair prejudice” means in law, when a farming company will be treated as a quasi partnership, and the practical steps to manage risk and secure an outcome before value is destroyed.
Why farming companies are different
Farming companies are rarely anonymous commercial ventures. Shareholders are typically close relatives who work on or around the farm. Shareholdings may have been gifted or inherited at different times and on different terms, often without matching updates to articles of association or shareholders’ agreements. It’s not uncommon for shares to be held on trust, perhaps as part of succession planning, or while until a child who has inherited or been given shares is a minor. The company may not own the land; it may instead operate on family owned freeholds or Agricultural Holdings Act or Farm Business Tenancies held by individuals or a trust. Inter company accounts, loan accounts and director remuneration are frequently fluid and recorded informally. Decisions about reinvestment, dividends and drawings are often as much about family need as business planning. All of this means governance is personal, expectations are often unwritten, and the risk of misalignment is high.
Common flashpoints on the family farm
The same themes recur in minority shareholder disputes across agriculture. Compensation and control are regular friction points. One sibling may draw a director’s salary and company-funded benefits while another, perhaps a sibling who has pursued opportunities off-farm or who is living elsewhere, holds shares but doesn’t hold a salaried position and receives little or no dividend. Capital projects, from a new dairy unit to a glamping diversification, can be pushed through by the board without a clear capital policy or shareholder mandate. Related party deals, example perhaps including rent paid for the use of a parent’s landholding, machinery trades between connected entities, or use of company cash to fund private assets, can raise conflict questions. Succession planning can be a difficult conversation to have and frequently lags the on the ground reality: voting shares may still sit with retiring parents who have stepped back operationally, while the on farm sibling assumes control day to day and treats the business as their own. Finally, information asymmetry is common; minority shareholders are kept in the dark about accounts, bank arrangements and strategy.
Unfair prejudice: what it is and why it matters
English company law offers a powerful remedy when those in control run a company in a way that is unfairly prejudicial to the interests of shareholders generally or of some part of them, typically those with a minority interest. In practical terms, it is the go to claim where a minority shareholder alleges that the majority has breached the articles, ignored proper corporate process, diverted value, frozen them out of management contrary to legitimate expectations, or refused distributions while extracting private benefits. The court has wide discretion on remedies. Most often, the outcome is a buyout of the minority’s shares at a price the court determines, with adjustments to reflect misconduct and whether a discount for minority shareholding is appropriate.
Not every poor decision or family row amounts to unfair prejudice. The applicant must show both prejudice in their capacity as a shareholder and that the conduct is fairly described as unfair. Conduct that is permitted under the company’s constitution can still be unfair in context, especially in small private companies that have always been run on mutual trust rather than on paper alone. This is an area where the idea of a quasi partnership can become especially relevant.
Quasi partnerships: when form follows family
Many family farming companies started their lives as traditional partnerships which were subsequently incorporated, but without that incorporation necessarily marking a change in approach – they often continue to be run as they were as a partnership. Others, even if they commenced as companies – still carry many of the hallmarks of partnership. In either case, that can leave us with a partnership wearing corporate clothes. Courts can recognise this and can treat such companies as quasi partnerships where specific factors are present:
- a relationship of mutual confidence,
- an understanding that all or certain members will participate in management, and
- restrictions on the transfer of shares that lock people in.
In that setting, excluding a sibling from management, starving them of information, or operating the business for personal benefit can be unfair even if the articles permit the majority to act as they did. The history matters: who was promised what, how were decisions made previously, and what were the parties’ legitimate expectations when they committed their capital and careers to the business.
Quasi-partnership characterisation is also really important when considering share valuation. Typically, when valuing a minority shareholding, valuers factor in a reduction to the value of shares held by a shareholder who owns less than 50% of a company, to reflect their lack of control and limited influence over the business. This discount is applied because minority shareholders typically have less bargaining power, reduced voting rights, and a limited ability to sell their shares compared to a majority shareholder. In the context of a quasi-partnership courts can and often do refuse to apply a minority discount on a buyout, on the basis that the shareholder did not bargain for a minority stake in an investment company but expected to have an ongoing participatory role in a family enterprise. Equally, if the unfairness includes diversion of assets or excessive remuneration, there is scope for the price to be adjusted to strip out that benefit or to compensate the minority for loss.
Typical unfair prejudice scenarios on farms
Exclusion from management is classic. An on farm sibling removes their brother or sister as a director while continuing to run the company and take full remuneration. Withholding information is another. Refusing access to management accounts, bank statements, or tenancy documentation prevents a minority from assessing the health of the company and their rights. There are sometimes examples of dividend manipulation, with profits retained while directors’ pay (or loans) and perks increase. Related party transactions such as leases of family land, purchasing feed or machinery from a connected business at non arm’s length prices, or charging personal expenses to the company (always an area of focus in a partnership dispute too!) are fertile ground for challenge. The issue of additional shares that further dilute a minority, perhaps to “reward” management, might technically be lawful depending on the company constitution but may still be unfair if used to entrench control. Finally, restructuring or removing assets – which can mean things like moving valuable machinery/kit into a separate company, moving a profitable diversification away from the farming company, or changing the occupancy arrangements in respect of land can trigger claims if done without genuine commercial rationale and proper process.
Other routes: derivative claims and winding up
Unfair prejudice is not the only option. A derivative claim allows a shareholder to sue on behalf of the company for wrongs done to it, such as misappropriation of assets, negligence or breach of directors’ duties. This route targets recovery to the company rather than a personal buyout. It is more procedurally complex and the court must give permission, but it can be appropriate where the harm is corporate. At the extreme, a “just and equitable” winding up may be sought, particularly where trust has irretrievably broken down and no workable buyout is possible. For farms, winding up is often threatened but usually a last resort, given the risk of forced sales, tax consequences and disruption to land holdings, exacerbated by the fact that those involved often live on holding and don’t always personally own their homes.
First steps when a dispute looms
It’s worth getting clarity on the documents and what they say as soon as possible. Obtain the latest articles of association, any shareholders’ agreement, director’s service contracts, board and shareholder minutes, and the company accounts, including details of loans and related party transactions. Map the structure: who owns the land and buildings (and identify if there is any ambiguity there – it’s not unheard of), what the company actually does, how tenancies and licences are documented, and where profits arise. Build a timeline of key events, promises and departures from past practice. Preserve communications and ensure the company maintains proper board procedure; sloppy process is fertile ground for challenge. Consider whether independent management accounts might be needed and seek advice early – early advice can help head off a bigger dispute further down the line.
Remedies and settlement dynamics
When resolution is possible – which it often is – settlement frequently involves a buyout, either of the minority by the majority or, occasionally, vice versa. The key issues are price, timings and terms. If unfair prejudice is made out, the court can fix a valuation date that avoids rewarding wrongdoing, exclude a minority discount where quasi partnership features exist, and has the ability to adjust for value diverted or excessive pay. Payment terms matter in agriculture, where liquidity can be very tight and value is often tied up in land and kit; staged payments, security over land, and tax aware structuring arrangements are common (and tax advice should generally be taken). Alternative remedies may include regulating future conduct, appointing an independent director, or setting aside improper share issues or transactions. Where control is the real issue, governance reform such as a clear shareholders’ agreement, dividend policy, information rights, or agreement about representation of different parts of the family in specific director roles can unlock a compromise without an immediate exit.
Reducing the risk: governance that fits the farm
Prevention is cheaper than cure. A modern shareholders’ agreement, aligned with updated articles, should address management roles, reserved matters requiring shareholder consent, dividend policy, director pay and benefits, information rights, dispute resolution and transfer mechanics with a fair valuation formula.
Updated articles are particularly important as we very frequently see companies that were originally set up with “standard” articles that aren’t necessarily fit for purpose as the business grows and develops.
If the company does not own the land it farms, it’s important to formalise the occupation: put in place written tenancies or licences and consider whether these need to be on arm’s length terms. Keep related party transactions documented – they also should be addressed in the company’s financial statements. Record board decisions and shareholder approvals properly. Align succession plans with the company’s capital structure: use different share classes if income and control need to be separated between generations. Finally, revisit arrangements after major changes such as incorporation of an original partnership, a new diversification, or a retirement so that documents reflect reality and expectations stay aligned.
A note on tax and timing
Disputes in farming businesses have tax consequences. Buyouts, share redemptions and asset transfers can trigger income tax, capital gains tax, SDLT and, in time, may have inheritance tax consequences. Reliefs can be preserved or lost depending on structure and timing, particularly where agricultural and business property relief are in play. Early specialist tax input – especially as we face imminent changes to the agricultural and business property reliefs – alongside legal strategy is essential to avoid turning a settlement into an avoidable tax bill.
Practical takeaway
Family agri businesses thrive on trust, but corporate law applies even when the boardroom is the kitchen table. If a dispute is brewing, focus on information, process and a realistic settlement pathway. Forward planning and prevention’s always much better than trying to resolve matters later. If harmony currently reigns, now is the time to invest in governance that reflects how the farm runs in practice and to try to achieve clarity about what everyone expects to happen in the future. When sibling rivalry tips into unfair prejudice, the law offers powerful remedies which can ultimately provide the basis for a court claim, although those remedies are often best used as leverage for a negotiated exit that preserves value, relationships and the farm for the next generation.
Field Notes is Charles Russell Speechlys’ weekly agricultural law blog, sharing plain-English insight into the legal and policy issues affecting agriculture, agricultural land and rural business life. From hints and tips on avoiding agricultural disputes, pitfalls to keep an eye out when planning for tenancy or family agri-business succession, to the latest agricultural legislative or policy changes and the most interesting farm-related court decisions, Field Notes makes the complex more understandable, always grounded in the realities of life on (and off) the land.
Field Notes comes out every Wednesday. Previous editions of Field Notes include:
- Fireworks, livestock, and liability: what risks and duties do farmers and event organisers need to be aware of?
- Old Michaelmas: Where Folklore Meets Fields, Fairs and Fine Print
- Planting Trees Today for Tomorrow’s Farms: New guidance, what a "Mast Year" is and why that matters in 2025
- Beyond Downton Abbey: the legal issues facing modern Landed Estates
- Agricultural Tenancies: Navigating Michaelmas and Anticipating Future Trends
