When you begin a business, especially if it is with a family member or friend, one of the last things you may think about is “what will happen if it does not work out?”
Partnership disputes come in many forms. One of the most common causes of strain on a business partnership is when one partner is not carrying his or her weight. Another common problem is when partners disagree about how to operate the company, including disagreements over strategic decisions, priorities, financing, and employee relations. Worse still, one partner may seek to push another partner out so they can be the sole owner of the business. Other serious issues include misappropriation of partnership funds or assets, fraud, and breaches of fiduciary duty where a partner puts their own interests ahead of the company’s interests.
Importance of a Clear Written Partnership Agreement
In the event of a partnership dispute, the first place to look to resolve the dispute is to the partnership agreement. A well-drafted partnership agreement should determine the rights, and obligations of the partners, and the remedies a partner has if their rights are violated.
The form of a partnership agreement will depend upon how your company is organized. If your business is a corporation than your agreement will be a “shareholder agreement.” If your business is a limited liability company, your agreement will be called a “membership agreement.” Regardless of the form, at a minimum, the agreement should address the following:
- Each partner’s respective ownership interest.
- Each partner’s duties and obligations to the partnership.
- Capital contributions.
- How additional capital contributions will be handled, if necessary.
- Compensation and distributions.
- What procedures the partnership will adopt and follow for making decisions.
- Conflict resolution including what happens when equal partners disagreement or are deadlocked, and how such disagreements are resolved.
- Buyout provisions in the event of an irreconcilable deadlock, retirement, or to force out an underperforming partner.
- When and under what circumstances the relationship between the partners, or the business, can be terminated.
- If the business is to be terminated, how to handle winding up the company’s affairs.
Disputes often arise when written partnership agreements ambiguous or even silent on key issues.
While it may be tempting to simply download a form from the internet rather than engage counsel, such forms are often boilerplate and fail to adequately address your company’s specific needs.
Even with a well-crafted partnership agreement, disputes can arise between partners. Dispute resolution can take a number of different paths including direct negotiations between partners or their attorneys, through dispute mechanisms build into a partnership agreement such as mediation or arbitration, both of which are designed to avoid expensive litigation.
Levine Staller’s attorneys have decades of experience in negotiating business disputes, and strive to achieve cost effective and amicable resolutions to protect our clients’ interests.
Partner and Shareholder Litigation
Unfortunately sometimes litigation is unavoidable. For example, if you discover that your partner has locked you out of the business or is misappropriating funds, you may need to file an Order to Show Cause with the Chancery Court for emergent relief including a restraining order. Or perhaps after extended negotiations you have been unable to come to an agreement with your partner. In such cases, it may be necessary to file a lawsuit seeking to remove your partner from the business, to compel a buyout, or to dissolve the business.
If it comes to litigation, it is important to hire an attorney an aggressive attorney experienced in litigating the complexities partnership and shareholder disputes. Our commercial litigators are prepared to represent you in matters involving:
- Misappropriation of corporate assets.
- Usurpation of corporate opportunities.
- Misconduct and breach of fiduciary duty claims.
- Disputes over capital contributions.
- Failure to pay distributions.
- Oppression of minority shareholder, partner, and membership rights, including freeze out actions.
- Partnership deadlock.
- Dissolution of corporations, LLCS, partnerships, and other closely held entities.
- Violations of non-compete or confidentiality agreements.
We Are Experienced Business Attorneys
If you are forming a partnership, or you’re dealing with a partnership or shareholder dispute, you should consider retaining an experienced business attorney to help you understand your options and rights. The business lawyers at Levine, Staller, Sklar, Chan & Brown, P.A. represent clients throughout New Jersey including Atlantic County, Cape May County, Camden County, and Ocean County. Contact us or call 609-348-1300 to schedule an appointment.