Partnership Disputes

When two or more people go into business together, they have effectively formed a “partnership”.  Technically, the terms “partner” or “partnership” are usually limited to an entity known as general partnership or limited partnership, but for simplification we will use them to describe shareholders in a closely held corporation, or members in a small Limited Liability Company (LLC).

The worst thing partners can do is establish a business or enter into some form of joint venture without a clear agreement what their rights and responsibilities are to each other.  Better yet, this agreement should be reduced to writing to avoid any ambiguities or misunderstandings about these responsibilities.

With or without a written partnership agreement, disputes do occur.  When they do, each partner needs effective legal representation to protect their interests.  If an informal resolution cannot be reached, litigation or alternative dispute resolution (ADR) may become necessary.  While litigation is never pretty, the consequences of not enforcing your rights may be far worse.  Say, for example, you are a minority shareholder in a closely held corporation.  Your partners (the majority shareholders) refuse to let you view the company’s financial reports.  How can you possibly know whether or not you are getting your rightful share of the company’s profits?  Or, if you do see the financials, they may show a lack of profits but also show the majority shareholder is taking out an exorbitant salary.  The cost of doing nothing may be tens or hundreds of thousands of dollars of lost profits to you over the years.

If you are the majority partner and have minority partners, watch out.  Your status as a partner (or officer or director in a corporation) creates numerous fiduciary duties for you.  If certain financial disclosures are not made, or if you are taking a salary (or other benefits) that your partners deem excessive, they can bring a suit against you for a breach of those fiduciary duties.

Other partnership disputes arise when one partner engages in competing activities with the partnership, or when the company needs money and only one partner has the ability to fund it.  Should you ever find yourself in a position where you or your partners have a dispute, you should immediately seek legal advice to protect your interests.  We can resolve many disputes informally and inexpensively, but when litigation or ADR is necessary, we will zealously advocate your position to get you the best possible results.

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