April 12, 2022
Remember how starting a company seems like a brilliant idea when you consider doing it with your friends? One minute, you’re polishing up business ideas during happy hour, and the next, you are scratching your head, looking at all the legal paperwork, wondering what went wrong.
Here’s something you might not have known: approximately 82% of all UK startups run into some sort of dispute within the first three years of opening up shop. That is not just another statistic, it’s nightmare fuel. Disputes within corporations are never as flashy and dramatic as movies portray them to be.
Cumulative problems seem to be the only fuel a singular event needs to spark startup quarrels. Here are some of the most common reasons:
Equity Splits: If one founder makes a significant investment and another solely concentrates on networking, tensions will arise.
Decision-Making Authority: Uncertainty regarding who casts the final vote for important business decisions can lead to deadlock.
Project Ownership: There is conflict when there is a lack of clarity about ascertaining whether a side project is a personal endeavor or an undertaking employed by the company.
If these problems are ignored in the early stages, they can turn far more serious.
The majority figure for serious litigation for big businesses in the UK, according to Shoosmiths in their 2025 Litigation Risk report, is over £600,000.
By all means, spend as much as you want on extinguishing fires, they will never hinder you as much as time. Some disputes can take months, or in some cases, years, to resolve.
During those painfully long months, you stop building new products, bringing in new customers, or better yet, raising fresh funds, cutting off competitors. You rot, trapped in mercenaries’ offices when your rivals are enjoying all the market space.
Smart business founders steer clear of conflicts. Treat founders’ agreements like a divorce prenup, they protect with equities, vesting, and even exist.
What has been overlooked is that these agreements need to be updated frequently. Regular maintenance is required because partnerships evolve, making annual check-ups essential.
Role boundaries minimise conflict. Who is responsible for sales? Who makes decisions about the product? Who speaks with the investors? Without boundaries, orderly collaboration morphs into diversified chaos.
Start with mediation. It's the quickest way. It is the most cost-effective, time-efficient, and preserves the most relationships. From CEDR's 2023 Tenth Mediation Audit, the overall settlement rate is 92%.
Expert determination suffices for a skilful technical dispute. Who owns IP? What about valuation disputes? Industry experts resolve these issues more quickly than the courts. Private binding arbitration is faster than standard litigation.
In other situations, the court cannot be avoided. If a partner disappears holding IP or actively sabotages the company, this is the only option left.
One party might be struggling, but everyone hopes for a smooth partnership. Shifting to UK commercial disputes, these are uncontrolled and costly. Winning means trying to claim damages from someone who’s utterly broke, as far as funds go.
Disputes cause emotional pain. The co-founder embroiled in the scuffle was, as we may guess, a very good friend at some point.
You offer complete trust by giving them your life savings and reputation.
In a dispute, 67% of founders reported enduring stress according to research from the Federation of Small Businesses. The fallout: depression, anxiety, relationship issues, and so much more.
Concerns over IP issues are a unique headache for tech startups. That side project your co-developer is working on? Lawsuit on the horizon.
Everything else is added pressure for fintech firms due to regulatory supervision. The FCA takes corporate governance failures very seriously. Social enterprises? Mission cohesion conflicts cut deeper: “What values are we truly working from?”
The best startups don’t only solve conflicts, they stop them from happening to start with. Monthly progress reviews, quarterly strategy sessions, and annual relationship audits help catch problems early on.
Trust is built from and on transparency. Sharing metrics, talking about challenges, and winning together means celebrating together. Suspicion spreads faster than a new viral app when hidden information is involved. New perspectives can also help. Fellow founders, mentors, and board members can point out some of the red flags that you miss.
The ceaselessly evolving world of startups is made even more complicated by remote work and dynamic changes in founder relationships. In-person meetings make things even smoother.
Equity talk gets more complicated with new financing structures like SAFEs.
Brexit continues to make the hiring process more complicated, and concerns over climate change lead to more profit versus sustainability arguments than ever before.
Not all startup disputes are inevitable, but it is wise to take precautions because they are frequent. Think of dispute resolution as insurance, you hope to never use it, but if you do, you appreciate having it.
A good strategy will allow businesses to navigate through conflicts even when severe turbulence hits. When highly driven people come together, different ideas spark, and innovation takes form. It's normal for some disagreements to intensify over time.
