Business Partnership Disputes
When formerly friendly business partners start having problems, stop talking to each other, can’t agree on anything, have secrets, and simply don’t cooperate anymore in bringing the business forward, you want to turn to us to help you resolve your business partnership dispute.
Business Partnership Disputes can arise between shareholders in a corporation, partners in a partnership, or members in a limited liability company (LLC). Businesses may want to kick out one partner; a partner is excluded from management or information, a partner doesn’t receive the profit that he/she is due…the scenarios are endless.
Operating Agreements and Shareholder Agreements in Business Partnership Disputes
Most business partnership disputes start with an investigation of the contracts between the parties. The LLC usually has an operating agreement, and the corporation a shareholder agreement. Sadly, many entrepreneurs neglect to enter into these contracts at the beginning of their partnership. In that case, the default rules of New York law apply. For New York LLCs, it is the New York Limited Liability Law and the Business Corporation Law for corporations.
Access to Books and Records
A common lawsuit is a request for access to the books and records of the business. Often, one or more partners exclude another partner from such access under dubious circumstances. A shareholder of a corporation and a member of an LLC have a clear and absolute right to access the business’s books and records.
Breach of Fiduciary Duties in Business Partnership Disputes
Another common scenario is that one or more partners violate their duties and obligations to the business and the other members. This is called a “breach of fiduciary duties.” Almost all lawsuits among business partners contain a claim of breach of fiduciary duties. Business partners owe each other and the business the utmost duty of loyalty and honesty. This means they cannot embezzle or waste the business assets; they cannot compete against the business. They cannot neglect their work responsibilities and so forth (the scenarios are really endless).
If a breach of fiduciary duty claim is directed at actions that harmed the business rather than the individual business partner, we will bring a so-called “derivative lawsuit” where the complaining partner sues the misbehaving partners on behalf of the business. If such a lawsuit is successful, the misbehaving partner would owe the damages caused to the business, not the individual partner.
Dissolution in Business Partnership Disputes
Under certain circumstances, a business partner can ask the court to dissolve the business and then distribute the assets to the owners. For example, if management of the business is hopelessly deadlocked or guilty of oppressive actions against you as a shareholder. An LLC member can force a dissolution if management is unable or unwilling to reasonably permit or promote the entity’s stated purpose or continuing the entity is financially unfeasible.
Many clients wish to be bought out by their fellow business partners or buy out those partners. They are surprised to learn that 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, but the road to such an outcome is long and uncertain. Then there may be the possibility of a so-called “freeze-out merger” where a business sheds a problematic minority owner by merging into a new company and paying the minority member the value of his or her interest.
However, in our experience, negotiation may often lead to the desired buy-out remedy. Either before a lawsuit is commenced or as a settlement after a lawsuit has gone on for some time.
Most litigation dealing with Business Partnership Disputes is more strategy than going it all the way to trial. Pressuring the misbehaving business partner with all available claims and publicity (court proceedings are for everyone to see) often results in meaningful negotiations and settlements, including desired buy-outs.
We can help you resolve business partnership disputes by fully investigating the matter, exploring all possible alternatives, and taking the other business partners or the business to court. If it is necessary to sue, we will guide you and forcefully pursue your rights in court. Do not hesitate to call us for a free consultation about your case.
See also: Business Partnerships Gone Bad