Partnership and Shareholder Disputes
Even business partners that view themselves as unified will have disagreements from time to time. However, these disagreements often lead to bigger problems. While the majority of disputes can be settled through discussion and negotiations, other partnership disputes can lead to extensive litigation, or worse, the downfall of a company or business.
Some of the more common partnership and shareholder disagreements include:
- Commercial disagreements, such as disagreements regarding a lease or lending dispute
- Breach of a contract
- Disputes involving the respective compensation and responsibilities of the shareholders or partners
- Issues regarding the management or operations of the business
- The failure of a business to pay a debt owed, which may also include a personal guarantee from a shareholder or partner
- Business succession either when there is a death or a principle shareholder decides to step down
- Breach of fiduciary duty, including self-dealing or misappropriation
- Disputes regarding non-compete or nondisclosure agreements, including the enforcement of such agreements
- Licensing issues at the federal or state level
If you have already entered into a partnership or shareholder agreement and a dispute has arisen, there are some alternatives to litigation that can yield more agreeable solutions.
- Negotiation: An informal discussion wherein parties hear one another out and come to their own compromise.
- Mediation: When a compromise is not possible between the parties on their own, a neutral party may become involved. In this process, each party presents their conflict with the intention of utilizing the mediator’s assistance and experience to reach their own agreement. This process is relatively informal, as the mediator does not give a ruling or judgment. Instead, the mediator gives insight and aids the shareholders or partners to make their own compromise.
- Arbitration: A partnership or shareholder agreement may require disputes to be resolved through private arbitration or the parties may otherwise agree to submit a dispute to arbitration, because they think it is a faster or less expensive alternative. In arbitration, a private arbitrator, acting much like a judge, makes a judgement or ruling on the conflict. This method is far more formal and the decision reached by the arbitrator is legally binding upon the shareholders or partners – and is enforceable in the same manner as a judgment or order entered by a court.
Avoiding Disputes Before They Happen
While not every problem is avoidable, there are precautions that can help when disputes do arise, and some that may even avoid major shareholder or partnership disputes.
- Written Agreement: Just as you would create a financial budget, having a partnership or shareholder agreement formally written can help to avoid potential disputes. Some topics to address in the drafting of a shareholder or partnership agreement include, but are not limited to:
Control of the company (including a breakdown of how much of the company belongs to each person)
- The role each person will play in the company
- The duties or obligations associated with each role
- How money will be contributed
- How money will be handled
- Decision-making procedures, including how to handle when an impasse is reached
- Worst case scenarios, include when and how a shareholder or partner can withdraw, how they will be replaced, and related issues.
- Hire an Attorney: Our Middletown business lawyers have a wealth of knowledge regarding business partnerships including forming businesses, drafting shareholder and partnership agreements, and handling litigation or arbitration when disputes cannot be resolved through negotiation.
- Make Time to Discuss Disputes: If a dispute arises, instead of making accusations and being inflexible, it is important to focus on trying to negotiate and solve the problem. If it seems that a solution cannot be negotiated, litigation or arbitration may be necessary – or shareholder or partners may seek to go their separate ways.