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.