No Shareholder Agreement - My Business Partner Is Running the Company Like It's Theirs. & What Can I Do?

If you are reading this, you are probably watching your business partner make decisions you were never consulted on, paying themselves whatever they want, and treating the company as though your shares do not exist. The most common thing we hear in this situation is: we never got around to a shareholder agreement. And the second most common thing is: does that mean I have no rights?

The answer is no. You have rights. They are different from the rights a shareholder agreement would give you, but they are real, they are enforceable, and in some cases, they are stronger than people expect.

This guide explains what the law provides when there is no shareholder agreement, what your business partner cannot do even without one, and the four options available to you right now, depending on your specific situation.

No shareholder agreement? We can review your situation and tell you what rights you have before things escalate.

If There Is No Shareholder Agreement, What Rules Actually Apply?

A shareholder agreement is a private contract between shareholders. When there is no agreement, the company is governed by two things: its constitution (if it has one) and the Corporations Act 2001 (Cth). Most small proprietary companies in Australia either have no constitution or use the replaceable rules set out in the Corporations Act itself.

The replaceable rules are a set of default provisions that apply automatically when no other agreement or constitution says otherwise. They cover things like director appointments, dividend decisions, share transfers, and the calling of meetings. They are not perfect protection for a minority shareholder, but they are nothing either.

What the replaceable rules provide that is directly relevant to your situation:

- Directors have duties to act in the best interests of the company as a whole, not in their own interests
- Directors must not use their position to gain an advantage for themselves or to cause detriment to the company
- Shareholders holding at least 5 per cent of the voting shares can call a general meeting
- Shareholders can inspect the company’s financial records under certain conditions
- Major decisions, such as changing the company’s constitution or issuing new shares,s require a special resolution passed by 75 per cent of shareholders.

The absence of a shareholder agreement does not mean your business partner can do whatever they want. It means the default rules of the Corporations Act apply. Those rules include enforceable duties that your business partner may already be breaching.

What Is Minority Shareholder Oppression and Does Your Situation Qualify?

Section 232 of the Corporations Act is one of the most powerful tools available to a minority shareholder in Australia. It allows a court to make a range of orders where the conduct of a company’s affairs, or a specific act or resolution, is either:

Contrary to the interests of the members as a whole, or
Oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members

The section 232 test does not require dishonesty or fraud. Conduct can be oppressive simply because it is commercially unfair. Courts have found oppression in situations involving:

Conduct	Why Courts Have Found It Oppressive
Unilateral director salary increases	Drains company funds, reduces dividend pool, benefits one shareholder at the expense of others
Excluding minority shareholders from management decisions	Legitimate expectation of participation, particularly in small proprietary companies where all founders are expected to be involved
Refusing to pay dividends while paying excessive director remuneration	Effectively locks the minority out of returns while the majority extracts value through salary
Issuing new shares to dilute the minority	Reduces minority shareholding and voting power without a genuine business justification
Denying access to the company’s financial records	Prevents minority from monitoring how company funds are being used
Making major decisions without shareholder meetings	Bypasses the rights all shareholders hold under the Corporations Act and the company’s constitution

If your business partner is raising their own remuneration without your agreement, making decisions that should require shareholder input, and excluding you from the management of the company, your situation is likely to meet the threshold for a section 232 oppression claim. This is not a marginal point. Courts take it seriously.

What Your Business Partner Cannot Do Legally, Even Without an Agreement

One of the most important things to understand is that a shareholder agreement does not create your rights as a shareholder from scratch. It specifies, clarifies, and adds to rights that already exist under statute and general law. Without it, some of those rights require more effort to enforce, but they remain enforceable.

Your business partner cannot legally do any of the following without shareholder approval or without exposing themselves to a legal claim:

Unilaterally raise their own director remuneration

Under section 202A of the Corporations Act, a director’s remuneration must be approved by the company in a general meeting, or by the constitution or a shareholder agreement. If neither applies, a director cannot simply decide to pay themselves more. Doing so without authorisation is a breach of directors’ duties and potentially a misappropriation of company funds.

Make decisions that require shareholder resolutions without holding a meeting

Certain decisions under the Corporations Act require either an ordinary resolution (more than 50 per cent of votes) or a special resolution (75 per cent of votes). These include issuing new shares, amending the constitution, selling substantially all of the company’s assets substantially, and voluntary winding up. Your business partner, acting as the sole director, cannot bypass these requirements.

Use company funds for personal benefit

Directors owe a duty to the company not to use company property, information, or their position for personal advantage. Using company funds to pay personal expenses, directing business opportunities away from the company for personal gain, or stripping assets from the company are all potential breaches of directors’ duties under sections 181 to 184 of the Corporations Act. In serious cases, these are also criminal offences.

Deny you access to information you are entitled to

As a shareholder, you have the right to inspect and obtain copies of the company’s financial records under section 247A of the Corporations Act, subject to a court order if access is refused. You also have the right to receive financial statements if the company is required to prepare them.

If you have reason to believe company funds are being misappropriated, seek legal advice immediately. Time is a factor in these cases. Assets can be dissipated, records can be altered, and the longer the conduct continues undocumented, the harder it becomes to establish the full extent of the loss.

CASE STUDY: Family Pty Ltd - Brother as MD, Unilateral Remuneration Increases, Passive Shareholder Excluded

Client situation: A passive shareholder came to us with a 40 per cent interest in a family Pty Ltd company. His brother held the remaining 60 per cent and had been appointed managing director. Over the prior 18 months, the brother had progressively increased his own director’s salary from $120,000 to $210,000 without any shareholder resolution.

No dividends had been paid in that period despite the company being profitable. The passive shareholder had not been consulted on any financial decision, had not received financial statements for the current year, and had been told by the brother that he had no say because he was not involved in the day-to-day operation of the business.

Legal position we identified: The director’s or salary increases were not authorised under the company’s constitution or by any shareholder resolution. The failure to pay dividends while extracting value through excessive director remuneration is a classic oppression pattern. The refusal to provide financial information was a potential breach of section 247A.

The client had a viable section 232 oppression claim and, separately, grounds to seek inspection orders for the company’s financial records immediately.

Our approach: We filed an application for access to the company’s financial records as an urgent first step to establish the full extent of the remuneration increases and the company’s financial position.

Simultaneously, we wrote a letter of demand to the brother identifying the unauthorised remuneration and inviting him to remedy the position. The letter made clear that a Section 232 application was ready to be filed if the matter did not resolve.

Result: The brother agreed to mediation within two weeks of receiving the letter. The matter was resolved through a structured buy-out: our client’s 40 per cent interest was purchased at an independently valued price that reflected the company’s actual earnings over the prior three years, rather than the suppressed value caused by the excessive remuneration.

The buy-out price was approximately 60 per cent higher than the figure the brother had initially offered informally.

Your 4 Options When a Business Partner Is Squeezing You Out

Option	When It Makes Sense	What to Expect
1. Negotiate directly or through lawyers	The relationship is salvageable, or the other party does not yet understand the legal exposure they face	Fastest and cheapest resolution. A letter from a lawyer identifying the legal breaches often creates movement that years of informal discussion did not.
2. Section 232 oppression application	Conduct is ongoing, significant, and the other party is not engaging in good faith.	Court proceedings in the Federal Court or the Supreme Court. Can result in buy-out orders, compensation, injunctions, and management changes. Takes 6-24 months.
3. Winding up application	The relationship has completely broken down, and there is no viable path to a buy-out.	The court orders the company to be wound up and assets distributed to shareholders. A significant step that effectively ends the business. Courts require serious grounds.
4. Negotiated buy-out	You want out and are willing to accept fair value for your shares, or you want the other party out, and they are willing to sell	Requires independent share valuation and a formal buy-sell agreement. Most disputes involving genuine oppression resolve this way before reaching a final court hearing.

Most shareholder disputes that involve genuine oppression resolve at Option 1 or Option 4, once the other party understands the legal exposure they face. The section 232 application and winding up application are tools that create leverage in negotiation as much as they are remedies in themselves.

How Do You Value Your Shares for a Buy-Out?

If the dispute resolves through a buy-out, the price of your shares is one of the most contested issues in the negotiation. Your business partner has every incentive to argue for the lowest possible valuation. You need to understand how courts approach share valuation so you can negotiate from a position of knowledge.

Courts considering share buy-out orders under section 232 typically instruct an independent expert valuer to assess the fair value of the shares. The valuation approach depends on the nature of the business:

Valuation Method	Best Used For	Key Consideration
Earnings multiple (EBITDA-based)	Profitable trading businesses with consistent revenue	Courts may adjust historical earnings to reverse the effect of excessive director remuneration before applying the multiple
Net asset value (NAV)	Asset-heavy businesses, property, holding companies	Requires an accurate current-value assessment of all assets and liabilities
Discounted cash flow (DCF)	High-growth businesses with projected future earnings	Projections are contested frequently – requires detailed financial modelling
Industry-specific benchmarks	Professional practices, franchises, and regulated businesses	Comparable transaction data for the specific industry

The oppression discount point:

One of the most important issues in a buy-out valuation arising from an oppression claim is whether the valuation should reflect any discount or premium for the minority shareholding.

In oppression cases, courts frequently order that no minority discount is applied, meaning your 40 per cent shareholding is valued at 40 per cent of the total company value, not at a discounted minority rate.

This is a significant difference, and it is one reason why establishing the oppression claim clearly before entering valuation negotiations matters.

Should You Try Mediation First? The Honest Answer

Yes, if the relationship is salvageable or the other party is likely to engage genuinely. But mediation without legal advice first is not the same thing.

The most common mistake in business partner disputes is attempting mediation before establishing your legal position. Without knowing what you can actually enforce, you have no leverage in the mediation. The other party knows more about the legal landscape than you do, and they will negotiate accordingly.

What changes when you get legal advice before mediation:

You know which specific conduct is legally actionable and which is not
You know the realistic valuation range for your shares before the other party makes you an offer
Your lawyer can write a letter identifying the legal exposure before the mediation begins, which changes the other party’s willingness to settle.
You are not making admissions or giving up rights in the course of informal discussions before you understand what those rights are

Mediation is the right first step in most of these disputes. But arrive at the mediation having already taken legal advice, with a letter on the table that identifies the conduct and the legal basis for a claim. That is when mediation actually produces a fair result.

How Prompt Law Can Help When Your Business Partner Has Taken Over

Shareholder disputes in small proprietary companies are among the most financially and personally damaging situations our commercial lawyers handle. They almost always involve people who trusted each other, and that trust is being exploited. The goal is not always to litigate. The goal is to restore fairness, quickly, and at the lowest possible cost.

Legal position assessment

We review the company’s constitution, any documents that might constitute a shareholder agreement, and the specific conduct you are describing to give you an honest opinion on what is legally enforceable before you commit to any course of action.

Financial records access

Where your business partner is withholding financial information, we file applications under section 247A of the Corporations Act to obtain the company’s records and establish the full picture of what has been happening.
Letter of demand: We write a formal letter identifying each breach, the legal basis for the claim, and the remedy required, allowing the other party to resolve the matter before proceedings are filed.

Section 232 oppression application

If the other party does not respond to the letter, we prepare and file the application in the appropriate court and seek urgent relief where assets are at risk.

Buy-out negotiation

We instruct independent share valuers, negotiate the terms of a buy-out on your behalf, and document any settlement in a binding deed of settlement and release.

Mediation representation

We attend and represent you at mediation, ensuring you do not settle for less than your position supports and that any agreement reached is properly documented.

Extensive experience in minority shareholder disputes and section 232 oppression applications in NSW
Track record of resolving business partner disputes through targeted legal correspondence before proceedings are necessary
10+ years of NSW commercial law experience across shareholder disputes, buy-outs, and corporate governance

FAQs: No Shareholder Agreement Business Partner Rights Australia

What are my rights as a minority shareholder if there is no shareholder agreement?

You still have rights under the Corporations Act 2001 (Cth) and, if the company has one, its constitution. These include the right to vote on certain decisions, the right to call or request a general meeting if you hold at least 5 per cent of voting shares, the right to inspect financial records under court order, and protection against oppressive conduct under section 232. A shareholder agreement would have given you additional contractual rights, but the absence of one does not leave you without protection.

Can my business partner raise their own salary without my agreement?

Generally no. Under section 202A of the Corporations Act, director remuneration must be approved by the company. Without a shareholder agreement or constitution provision authorising a specific amount, the director cannot unilaterally set or increase their own remuneration. Doing so may be a breach of directors’ duties and grounds for an oppression claim under section 232.

What is minority shareholder oppression in Australia?

Minority shareholder oppression is conduct by those in control of a company that is oppressive to, unfairly prejudicial to, or unfairly discriminatory against a minority shareholder. It is governed by section 232 of the Corporations Act 2001 (Cth). Courts can order a wide range of remedies,s including buy-out orders, compensation, management changes, and in extreme cases, winding up the company.

My business partner is the only director and is excluding me from all decisions. What can I do?

First, document everything: decisions being made without your input, remuneration changes, and any communications that show you have been excluded. Second, get legal advice about whether the conduct meets the threshold for a section 232 oppression claim. Third, request access to the company’s financial records. A lawyer can send a formal letter to the director identifying the conduct and inviting resolution, which in most cases creates the conditions for a negotiated outcome.

Can I force my business partner to buy my shares?

Yes, if a court finds that oppressive conduct has occurred under section 232, it can order one party to buy out the other at a fair value determined by an independent expert. The court can also order that no minority discount is applied to your shareholding percentage. This means your shares are valued at their proportionate share of the total company value, not at a reduced minority rate.

How are shares valued in a shareholder buy-out dispute?

The valuation method depends on the business type. Common approaches include earnings multiples based on EBITDA, net asset value, and discounted cash flow. In oppression cases, courts may adjust historical earnings to reverse the effect of excessive director remuneration before applying the multiple. Courts also frequently decline to apply a minority discount, which can significantly increase the buy-out price for a minority shareholder.

Does it matter that we are family members and not just business partners?

The family relationship is relevant in two ways. First, courts and mediators are often aware that family disputes carry additional complexity and emotional stakes, which can affect how they approach the matter. Second, in some cases, the family relationship creates a mutual expectation of involvement in the business that goes beyond what the formal shareholding structure shows, and courts may consider that legitimate expectation when assessing what constitutes fair conduct.

Can I get access to the company's financial records if my business partner is withholding them?

Yes. Under section 247A of the Corporations Act, a shareholder can apply to the court for an order allowing them to inspect the company’s financial records. The threshold for obtaining this order is relatively accessible. If you have a genuine reason to suspect that company funds are being misappropriated or that the financial records will support an oppression claim, a lawyer can file this application as an urgent first step.

Should I try to negotiate with my business partner before taking legal action?

In most cases, yes, but negotiate from a position of legal knowledge rather than from a position of uncertainty. Getting legal advice first means you know what is enforceable, what a fair buy-out price looks like, and what specific conduct the other party needs to account for. A formal letter from a lawyer identifying the legal breaches before any negotiation often moves away from informal discussions that had not been achieved.

How long does a shareholder dispute take to resolve in Australia?

Resolution time depends on how early legal advice is sought and how willing the other party is to engage. Disputes resolved through a formal legal letter followed by negotiation can be concluded in weeks to months. Disputes that proceed to a section 232 oppression application in court typically take between 12 and 24 months to reach a final hearing, though many settle before that stage. The earlier legal advice is obtained, the more options are available and the shorter the likely resolution timeline.