Did you know that in New York it is harder to divorce a business partner than a spouse?  Unlike in marital divorces, there is no guaranty of a divorce as the end goal.

WHAT IS A BUSINESS DIVORCE LAWYER?

Business divorce technically means the legal separation of a business relationship between business owners of a closely held business, meaning a corporation, partnership, or limited liability company owned by only a handful of owners.  However, business divorce attorneys do not only deal with separation issues, but also with any kind of dispute arising between business owners.  Lately, all such practice has been labeled “business divorce.”

Imke Ratschko Small Business Lawyer

For legal advice call 212 2531027 or contact us here.

Injunctive Relief

To be successful in obtaining a preliminary injunction, you have to establish that you would most likely win the lawsuit in the end, that there is a danger of irreparable harm if an injunction is not granted, and that the balance of the equities is in your favor.  Courts will only grant you an injunction if you have evidence that is “clear and convincing”.  

Dissolution of LLCs

A member of an LLC can bring a lawsuit to dissolve an LLC whenever it is “not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement”, see Section 702 Limited Liability Company Law.  This is a difficult lawsuit to win.  In most cases, it is not sufficient to base such a lawsuit on deadlock among the members or other internal upheaval or breaches of fiduciary duties.  You must show that the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or that continuing the entity is financially unfeasible.  If the business is run just fine, but the members are in never-ending fights, that is not enough. 

Dissolution of Corporations in cases of Deadlock or Oppression

A 50% shareholder of a corporation can bring an action under Section 1104 Business Corporation Law asking the court to dissolve the corporation because there is a deadlock among the directors or shareholders.

A 20% shareholder of a corporation can bring an action under Section 1104-a Business Corporation Law alleging illegal, fraudulent or oppressive actions or that the property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation.  Faced with such a lawsuit, the other members can force the 20% shareholder to sell its shares under Section 1118 Business Corporation Law.

Forced LLC Buy-Out

Many disgruntled business partners wish to be bought out by their fellow business partners or buy out those partners.  Unfortunately, there are very few ways of forcing a buyout.  Unless the governing contract has any special provisions dealing with partners’ exit opportunities, the possibilities are slim.  There is the possibility of having a judge grant an equitable buyout in the context of dissolution, but the road to such an outcome is long and uncertain.  “Equitable” means there is no specific law that grants the right, but a judge, after the dissolution of an LLC, finds buyout by one partner of the other a better solution.

LLC Merger Fallout Situations

In New York, majority members can force out minority members by merging the LLC into a new LLC which then excludes the minority member.  The laws provide some protections for minority members to make sure that they end up with the fair value of their membership interests.  If there is any breach by the majority members of the required procedures, minority members can bring a lawsuit complaining of the breach of their rights.  See also “Cash Out Merger – the totally legal way to get rid of a minority LLC member

Imke Ratschko Small Business Lawyer

For legal advice call 212 2531027 or contact us here.

WHAT IS BUSINESS DIVORCE LAW LIKE?

Business divorce practice is highly emotional because there is always a child involved, the business.  You can find all the drama and upheaval of real divorces: betrayal, cheating, lack of communication, lack of financial support, abandonment, disrespect…  If the business has been around for a while, we are talking about lifelong careers and dreams being shattered, so it is understandable that the parties to such disputes are in the middle of one of the biggest fights of their lives.

In helping business divorce clients, we are particularly mindful of having empathy and compassion.  We are understanding and aware of the feelings and thoughts involved but conscious at every step of the way of acting in a way to resolve the situation and keep the end goal in sight.

WHAT ARE BUSINESS DIVORCE LAWSUITS LIKE?

Business partnership disputes in court often deal with the same set of claims.  Claims for breach of fiduciary duties, breach of contract, oppression of minority owners, fraud and illicit competition, access to books and records of the business, dissolution of the business, or buyout.  Sometimes the damages caused by the bad apple business partner are so immediate and harmful that courts must be brought in to help with preliminary actions, so-called interim remedies, either a preliminary injunction to immediately cease damaging conduct or to act in a certain way.

Business divorce litigation often does not go to trial. Business partnership disputes in court are often strategic moves to pressure the opposing business partners to come to the negotiation table.  That is not to say that we bring actions that have no chance of success; it is just often the case that settlement is the better way of resolving an issue.

WHAT IS THE MOST OVERLOOKED TOOL TO PREVENT ANY BUSINESS PARTNERSHIP DISPUTE?

That is an easy answer. You must have agreements that clearly spell out all the rights and liabilities between business owners, including exit strategies. I guess you could call them prenuptial agreements, but we call them operating agreements, shareholder agreements, or partnership agreements. And that form agreement that came with your online entity formation package is NOT sufficient to protect you, you need an experienced small business lawyer helping you draft these agreements.

Call us Today 212 253-1027

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