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When Business Relationships Sour

Posted By Berry Law Firm || 23-Jun-2015

Many consider their business partners members of their family – and, believe me, nobody drives me crazy like my family. Similar to the rate of divorce, about half of the business relationships I witnessed deteriorated to the point where someone wanted out – or wanted someone else out – even among friends.

You have heard me preach it before: just like good fences make good neighbors, good business contracts can make good business partners. Like a good prenuptial agreement, at the onset of a business relationship, a partnership agreement – or an operating agreement (LLC) or shareholders’ agreement (corporation) – can help keep the peace and mitigate problems when they inevitably occur.

For example, most agreements set the roles of owners, the means of dispute resolution, and contain buy-sell provisions. An agreement can specify when to dissolve a business, whether to use appraisers or net income to value a business, and even require mediation or arbitration, just to name a few. Where a written agreement fails to address a specific circumstance, a court would look to the default under the statutes and caselaw to supply missing, essential contract terms; however, this doesn’t mean it is ever too late to make an agreement.

In the event your partnership began on a handshake – and most do – even after trouble begins, you can still agree to a dissolution or buy out if things have gone south. You might adopt a settlement agreement to determine how a business should be valued or an exit strategy for a partner whose opinions are no longer valued.

For further example, when a buyout needs to occur and a fair market value cannot be agreed, a strategy for reaching a consensus can be employed, such as the average between three appraisers (one appointed by both sides and the appraisers agreeing to appoint a third) or the appointment of binding arbitrators. You can disagree without being disagreeable.

In fact, it is almost always more cost effective to agree on how to disagree than to end up in court. Too often I have been contacted by businessmen who are fighting over a marginal amount on principle when the retainers for either side’s counsel are going to exceed the amount in dispute.

That aside, sometimes business partner oppression is grievous. Sometimes business interests are worth fighting to preserve. Regardless of whether your business is a corporation, a limited liability company, or a traditional partnership, there are means under the law to sever the business relationship between the parties and wind up corporate affairs. Any party may petition a court when the partners cannot agree on how to profitably operate the partnership, end the business, or arrive at an accounting.

If you are having problems, the first step is to get your own independent counsel to review the business documentation, whatever it is, discuss options, and give independent guidance. Feel free to call Berry Law Firm for a free initial consultation.