Disputes Between Business Partners in Chile: Causes, Legal Options, and How to Resolve Them

Disputes between business partners are among the most complex crises a company can face. What begins as a difference of opinion over the direction of the business can quickly escalate to paralyze management, compromise finances, and, in the most serious cases, destroy a company that took years to build. This article explains why these disputes arise, what legal options exist to resolve them, and what measures can be taken to prevent them.

1. Why Do Partner Disputes Arise?

The most common causes are not usually legal in origin, but strategic and relational. The most frequent include:

Disagreements over the direction of the business. Partners may have different visions of where the company should grow, what risks to take, or how to distribute profits. What was once a shared vision can diverge significantly over time.

Imbalances in dedication and contribution. When one partner feels the other is not contributing what they should — whether in time, capital, or management — the relationship deteriorates. This asymmetry is especially critical in companies where all partners work actively in the business.

Lack of clarity in the bylaws or shareholders' agreement. Many disputes are not about facts, but about rules. Who has authority to sign? How are decisions made when there is a deadlock? Can a partner sell their stake to a third party without the others' consent? If the documents do not address these questions, the dispute has no clear answer.

Personal circumstances that affect the company. A divorce, an inheritance, the entry of a new investor, or simply a partner's personal burnout can bring external tensions into the company.

Abuse of position or overreach of authority. When a managing partner makes significant decisions without consulting the others, enters into related-party transactions on terms unfavorable to the company, or withdraws funds irregularly, the dispute tends to become judicial.

2. The First Step: Understanding What Type of Company Is Involved

Not all corporate disputes have the same solutions. The applicable legal framework depends on the type of company:

Stock Company (Sociedad por Acciones, SpA). This is one of the most widely used corporate forms in Chile, particularly among entrepreneurs and investors. It is governed by its bylaws, by articles 424 et seq. of the Commercial Code and, on a subsidiary basis —in all matters not otherwise provided for and to the extent not inconsistent with its nature—, by the rules applicable to closed corporations (sociedades anónimas cerradas) set forth in Law No. 18,046 (article 424 of the Commercial Code). Its bylaws can —and should— include specific mechanisms to resolve internal disputes: special quorums, arbitration clauses, rights of first refusal, and procedures for the exit of shareholders. In the absence of bylaw regulation, conflict can become very difficult to manage.

Limited Liability Companies (Sociedad de Responsabilidad Limitada, SRL). As a general rule, the transfer of equity interests requires the unanimous consent of all partners (art. 4° Law No. 3.918). This means a partner who wants to exit may become trapped if the others do not consent to the transfer. However, this rule can be modified by agreement — and therein lies the preventive solution: establishing exit mechanisms in the bylaws or partners' agreement from the outset.

Corporations (Sociedad Anónima). Governed by its bylaws and, subsidiarily, by Law No. 18.046. One important feature: the board of directors of a corporation can only be removed in its entirety by the shareholders' meeting (art. 38, Law No. 18.046), not on an individual basis. This limits options when the dispute involves a specific director.

3. Legal Options for Resolving the Dispute

Once a dispute has arisen, several paths are available. The right choice depends on the severity of the conflict, what the corporate documents provide, and what each party is trying to achieve.

Direct Negotiation and Out-of-Court Settlement

This is the first option and, when it works, the most efficient. A negotiated agreement between the parties — ideally with legal counsel on both sides — can result in a restructuring of the company, a purchase of equity interests, or an orderly dissolution, without the costs and delays of litigation. The advantage is that the parties retain control over the outcome. The disadvantage is that it requires a willingness to engage in dialogue, which is not always present.

Mediation and Arbitration

A preliminary clarification is warranted, as this is a point that tends to cause confusion: in corporate matters, arbitration is not an alternative that the parties can freely elect, but rather a matter of mandatory arbitration (arbitraje forzoso) by virtue of article 227 No. 4 of the Courts Organization Code. That provision states that the following must be resolved by arbitrators: "disputes arising between partners of a corporation, of a commercial general or limited partnership, or between the participants in a joint account, in the case of article 415 of the Commercial Code." The rule also extends to limited liability partnerships (sociedades de responsabilidad limitada) by reference in article 4 of Law No. 3,918, and to SpAs by virtue of the supplementary application of Law No. 18,046. In other words: as a general rule, ordinary courts have no jurisdiction to hear disputes between partners or shareholders.

There is one relevant exception. Article 125 of Law No. 18,046 —a special rule applicable to corporations— allows the plaintiff to "withdraw" (sustraer) the conflict from arbitration and bring it before the ordinary courts, unless the bylaws contain an express arbitration clause, in which case the autonomy of the parties prevails and arbitration under the bylaws becomes mandatory. This power of withdrawal is, moreover, not available to directors, managers, administrators, principal executives, or to shareholders whose shares —directly or indirectly— exceed 5,000 UF in book or market value at the time the claim is filed. For all of them, arbitration is always the mandatory route.

As for the appointment of the arbitrator, a distinction must be drawn according to the type of company. In the case of corporations (sociedades anónimas), Article 4 No. 10 of Law No. 18,046 provides that, where the bylaws are silent, disputes shall be submitted to an arbitrador (arbitrator in equity). For stock companies (SpA), there is a specific and direct rule in Article 441 of the Commercial Code: disputes arising between shareholders, between shareholders and the company or its directors or liquidators, and between the company and its directors or liquidators, must be resolved through arbitration, and the bylaws must specify the type of arbitration, the number of members of the arbitral tribunal and the method of appointment. Where the bylaws are silent, the provision sets out two default rules: (i) a sole mixed arbitrator (árbitro mixto) shall hear the dispute in a single instance —acting as arbitrador with respect to the procedure but ruling according to law on the merits—, and (ii) the arbitrators shall be appointed by the ordinary court of the company's domicile. For limited liability companies (sociedades de responsabilidad limitada) and commercial general partnerships (sociedades colectivas comerciales), the forum is likewise mandatory arbitration, although the appointment is governed by the general rules of the partnership agreement and the Organic Code of Courts.

A further distinction has important practical consequences: the arbitrator designated in the shareholders' agreement and the arbitrator designated in the bylaws are not interchangeable. Matters of corporate public order, such as the dissolution of the company, may be heard only by the arbitrator designated in the articles of incorporation or bylaws, not by the one designated in the shareholders' agreement.

Mediation, on the other hand, is a genuinely voluntary procedure. It seeks an agreement between the parties with the support of a neutral third party, without an imposed decision, and it is useful when the commercial relationship has value and the parties would prefer to preserve it. Mediation may be attempted before or in parallel to arbitration, without affecting the jurisdiction of the arbitral tribunal to decide the merits if mediation fails.

Challenge of Corporate Resolutions

When a managing partner has taken decisions without the necessary authority, has falsified meeting minutes, or has approved resolutions under irregular conditions, those acts may be judicially challenged.

A relevant technical point should be noted here: the corporate nullity regime is not reduced to the traditional civil-law distinction between absolute and relative nullity. Where the incorporation and amendment of companies are concerned, a distinct trilogy applies: (i) nullity by operation of law (nulidad de pleno derecho), which is non-curable and affects companies that lack written support in the terms required by law; (ii) absolute nullity curable for formal defects, with retroactive effect of the cure and a two-year statute of limitations in the cases provided for by law; and (iii) absolute nullity non-curable for substantive defects, which encompasses the classic civil-law grounds such as unlawful object or cause and absolute legal incapacity.

Relative nullity under the Civil Code, by contrast, does not apply autonomously and directly to the act of incorporation itself, but it may be invoked in respect of specific corporate acts —such as assignments of corporate interests, sales of corporate assets, or specific resolutions of corporate bodies—, as confirmed by case law. The time limits and requirements of each of these actions differ, so the situation should be assessed promptly and with specialized counsel, and one should not assume that time is irrelevant.

Removal of the Administrator

The mechanisms for removal vary significantly depending on the type of company, and confusing them is one of the most frequent reasons why this action fails or turns into a separate litigation of its own.

In corporations (sociedades anónimas), Article 38 of Law No. 18,046 is categorical: the board of directors may only be revoked as a whole by an ordinary or extraordinary shareholders' meeting, and the individual or collective revocation of one or more of its members is not permitted. In addition to this rule, Article 77 of the same law provides a statutory ground for automatic full revocation of the board, triggered when the shareholders' meeting rejects the balance sheet for a second consecutive time.

In limited liability companies (sociedades de responsabilidad limitada), the regime is more specific than is often assumed. Through the reference made by Law No. 3,918 to the rules governing general partnerships, the removal of the statutory manager is governed by Article 2072 of the Civil Code, which requires serious cause —defined as one that renders the manager unworthy of trust or unable to manage effectively—. This is not an open-ended ground, nor is it sufficient to simply gather a majority: case law has interpreted serious cause as an indeterminate legal concept of an illustrative, non-exhaustive nature, which the judge must give content to on a case-by-case basis. The loss of affectio societatis, unworthiness of trust and conflict of interest have been consistently recognized as sufficient grounds. Without evidence of serious cause, the removal of the statutory manager is not legally possible.

In stock companies (SpA), the regime is more flexible. Law No. 20,190, which created the SpA, together with the supplementary application of Law No. 18,046, allows for broad contractual freedom in the bylaws to regulate the removal of the manager, without replicating the regime of Article 2072 of the Civil Code with the same intensity. For this reason, the bylaws of a SpA can —and should— precisely define the grounds, the required majorities and the procedure for removal.

If the bylaws do not properly regulate this process for each type of company, the removal action itself may turn into a prolonged dispute.

Dissolution and Liquidation

In the most serious cases — when the company is paralyzed, the partners are irreconcilable, and the business can no longer operate — dissolution may be the only viable outcome. It can be agreed voluntarily among the partners or, in certain circumstances, requested through the courts.

In closely held corporations, however, judicial dissolution is not available for every partner dispute: the law reserves it for situations of a certain gravity — serious violations of the law or regulations causing harm, fraudulent management, or other irregularities of comparable severity (art. 105, Law No. 18.046). Furthermore, only shareholders representing at least 20% of the company's capital can petition for judicial dissolution. It is not, therefore, a remedy available for minor disagreements.

It is also important to distinguish between dissolution and liquidation: they are separate processes. A dissolved company does not immediately cease to exist as a legal entity. It continues under that capacity for the purposes of liquidation, and must add the words "en liquidación" (in liquidation) to its name (art. 109, Law No. 18.046). During that period, the company may only carry out acts that directly facilitate the liquidation, which significantly restricts its operational capacity.

4. Liability of the Managing Partner

A critical issue in corporate disputes is determining whether the person managing the company incurred liability toward the other partners. The scope of that liability varies by company type.

In corporations, article 41 of Law No. 18.046 requires directors to exercise the care and diligence that persons ordinarily apply to their own affairs, and establishes joint and several liability for losses caused by willful or negligent conduct. Article 42 sets out specific prohibitions related to conflicts of interest, use of privileged information, and transactions harmful to the company's interests. An additional element of practical significance: article 45 of the same law establishes a presumption of liability against directors in certain cases — including the approval of related-party transactions in violation of article 44. This presumption shifts the burden of proof and significantly facilitates a liability claim against the offending director.

In SpA and SRL companies, these duties are not developed in as much detail in the applicable legislation. In the SRL, they are governed subsidiarily by the rules applicable to general partnerships. In practice, the determination of administrator liability in these company types depends to a greater extent on the content of the bylaws and the shareholders' agreement — which reinforces the importance of drafting them carefully from the outset.

5. The "Shotgun" Clause and Other Exit Mechanisms

In comparative corporate law — and with growing application in Chile — shareholders' agreements include specific mechanisms to manage a partner's exit when there is disagreement:

Right of first refusal. Before selling to a third party, the partner who wants to exit must offer their shares or equity interests to the other partners on the same terms. This protects the ownership structure and prevents the entry of unwanted parties.

Drag-along clause. Allows the majority partner to require the minority partner to sell on the same terms when a third party makes an offer to acquire a controlling stake or the entirety of the company. This facilitates company sale transactions.

Tag-along clause. Protects the minority partner: if the majority partner sells their stake to a third party, the minority partner has the right to sell on the same terms.

Shotgun clause or reciprocal offer. One partner offers to buy the other's stake at a set price; the other may accept the sale or, alternatively, buy the first partner's stake at that same price. Its validity and enforceability in Chile has been recognized in arbitration, including the counter-offer-at-equal-price mechanism. It is a tool that incentivizes fair proposals and resolves deadlock situations without the need for court proceedings.

One important caveat: in publicly traded corporations (sociedades anónimas abiertas), the bylaws may not include restrictions on the free transfer of shares (art. 14, Law No. 18.046, as amended by Law No. 20.382), and shareholders' agreement provisions restricting transfers are unenforceable against third parties, though valid between the parties that signed them.

The absence of these mechanisms in corporate documents is, in many cases, the reason partner disputes end in lengthy and costly litigation.

Summary: The Critical Points

If you are facing or anticipating a corporate dispute, these are the issues you cannot afford to overlook:

1. Review the bylaws and shareholders' agreement before taking any action. The rules of the game are already written — or they are not, and that is equally important information.

2. Document everything. Emails, meeting minutes, financial statements, and cash records are the foundation of any legal strategy.

3. Act promptly if there are irregularities. Deadlines to challenge corporate resolutions vary depending on the nature of the action, and time should not be allowed to pass without legal advice.

4. Evaluate the most appropriate path based on your objective: do you want to remain in the company, exit on fair terms, or dissolve? Each objective calls for a different strategy.

5. Seek legal advice early. The worst time to consult a lawyer is when the dispute has already escalated and positions have become entrenched.

Frequently Asked Questions About Partner Disputes in Chile

Can a partner exit an SpA if the others refuse to buy them out? It depends on what the bylaws provide. In an SpA, shares are in principle freely transferable, unless the bylaws establish restrictions. If there is no statutory right of first refusal, the partner may transfer their shares to a third party without requiring the others' consent. If restrictions exist and the other partners neither exercise the right of first refusal nor consent to the transfer, the options available to the departing partner depend on the specific circumstances and may include nullity claims, liability actions, or, in extreme situations, dissolution of the company.

What happens if the company is paralyzed because the partners cannot agree? It is one of the most complex situations. If the bylaws do not include deadlock-breaking mechanisms, the paralysis can persist indefinitely. In those extreme cases, there are legal options aimed at forcing a resolution — including judicial dissolution where the law permits it — but they are costly and time-consuming. Prevention through a well-drafted shareholders' agreement is always preferable.

Can a partner sue another for damages caused to the company? Yes. If the managing partner acted negligently or disloyally to the detriment of the company, the other partners may bring liability claims, either directly or through the company. In corporations, the law also establishes a presumption of director liability in certain cases — such as the approval of related-party transactions in violation of the law — which significantly facilitates these claims.

Is it possible to judicially dissolve the company if a partner objects? In closely held corporations, yes, but subject to strict conditions. Judicial dissolution is only available in cases of serious gravity — serious legal violations, fraudulent management, or similar irregularities — and can only be requested by shareholders representing at least 20% of the company's capital (art. 105, Law No. 18.046). It is not an available remedy for ordinary partner disagreements.

What is the difference between the arbitrator of the shareholders' agreement and the arbitrator of the bylaws? They are not interchangeable. The arbitrator of the shareholders' agreement has jurisdiction to resolve controversies arising from that contract between the parties. Matters of corporate public order, such as the dissolution of the company, fall within the exclusive jurisdiction of the arbitrator of the articles of incorporation or bylaws. It should also be recalled that, as a general rule, disputes between partners and shareholders are subject to mandatory arbitration (article 227 No. 4 of the Courts Organization Code). The ability to "withdraw" the dispute and bring it before the ordinary courts under article 125 of Law No. 18,046 operates only in the absence of a bylaw provision and is, in any event, not available to directors, managers, principal executives, or to shareholders whose shares exceed 5,000 UF in book or market value at the time the claim is filed.

In Varela Abogados we advise partners and shareholders at every stage of a corporate dispute: from the preventive review of bylaws and shareholders' agreements to representation in arbitration and litigation proceedings. Learn more about our dispute resolution practice or contact us directly for a consultation.

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The information contained in this article is for general informational purposes only. It does not constitute legal advice and is not a substitute for consultation with a lawyer regarding your specific situation. For guidance on your particular case, we invite you to contact our team directly.