When Is A Company Not A Company? When it's a Quasi Partnership

When is a company not a company? When it's a quasi-partnership

The concept of a quasi-partnership was created by the House of Lords 40 years ago in the case of Ebrahimi v Westbourne Galleries. It provides protection to minority shareholders where there is a personal relationship or mutual confidence. Long-term business partners and family-run companies are often defined as quasi-partnerships.

If you are involved in a quasi-partnership and would like advice on your legal rights, or believe you are being treated unfairly, speak to Clough & Willis today.  Our experienced team has a great deal of experience in dealing with all areas of corporate law and would be happy to help.

Either call us on 0800 083 0815, or fill out an online enquiry form and a member of the team will get back to you.

Ebrahimi v Westbourne Galleries Ltd [1973]

The case of Ebrahimi v Westbourne Galleries revolved around the fall out between two business partners based in London. They had decided to incorporate their rug business due to its continued success.

Owning 50% shares each Mr Ebrahimi and Mr Nazar were the sole shareholders in the company and took a director's salary rather than dividends for tax reasons. The profits from the business went only to the directors and there were restrictions in place to prevent Mr Enrahimi from selling his shares. In due course, Mr. Nazar's son joined the business, was appointed to the board of directors and allocated 10% of the company shares. 

After a falling out between the directors, Mr Nazar and his son voted to remove Mr Ebrahimi as a director and excluded him from the management of the business. Mr Ebrahimi decided to petition the court for relief. 

The judgement

The House of Lords held that parties that are bound by contractual agreements in a company (i.e. shareholders agreements and/or the articles of association) can also rely on a pre-existing situation for equitable purposes. The Lords believed that because the company was so similar in its operation as it was when it was a partnership, they created what is now known as a quasi-partnership.

Outcomes of the judgement

Based on the close personal relationship between the parties involved, the Lords decided it would be inequitable to allow Mr Nazar and his son to use their rights to force Mr Ebrahimi out of the company. It was deemed just and equitable to wind the company up and give Mr. Ebrahimi his money.

The case identified the factors which the court should consider when determining if there is a quasi partnership. These include:

  • An association formed or continued on the basis of a personal relationship involving mutual confidence
  • An agreement that all or some (there may be sleeping members) of the shareholders will be involved in the conduct of the business
  • Restrictions on the transfer of a member's interest (i.e. on disposal of shares)

Companies Act 2006

According to this act when the court is satisfied there has been unfair prejudice towards a shareholder, the court may make such order as it thinks fit for giving relief in respect of the matters complained of.

Speak to the team

If you have been affected by circumstances similar to those outlined above and wish to discuss your legal rights, the team at Clough & Willis are here to help. Call us today on 0800 083 0815, or fill out an online enquiry form. We have offices in Bury and Bolton and can be easily reached throughout the North West.

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