Partnership & Shareholder Disputes

 Much like personal relationships, business partnerships can be fragile. Partners will inevitably disagree about the direction of the business, business strategy, whether to reinvest or distribute earnings, and many other business and governance decisions. Sometimes one partner believes he or she is working harder than the other partners and becomes resentful, sometimes even engaging in breaches of fiduciary duties or fraud to compensate him or herself for those additional efforts and stress through unequal distributions of company profit. These tensions often cause business partnerships to end in a business divorce, which can be even more expensive and stressful than divorcing a spouse. 

Business partners frequently fail to contemplate and address the possibility of divorce when they start their business. Indeed, many partners form their partnership, limited liability company, or corporation without a written agreement governing their relationship. Alternatively, a form is downloaded from a website and signed without meaningful consideration. After all, new businesses frequently have little time or money for formalities like company agreements tailored to their specific business and partnership terms. 

Texas law does not allow forced buyouts absent a written agreement. Consequently, one or more business partners frequently find themselves desiring to dissolve or exit the partnership with no mechanism to do so. The parties lack a document containing a buy-sell provision under which a partner can force the remaining partners to buy his or her interest or consent to a third party stepping into the partnership. Situations like this require an experienced business divorce lawyer.

Whether you are a majority or minority owner of a business seeking to part ways with one or more of your business partners, you are not without options even if your partnership or company agreement is nonexistent or silent when it comes to dispute resolution or divorce. For example, “silent partners” not involved with the day-to-day aspects of the business can seek to inspect the company’s financial and operating records, which often leads to identification of self-dealing or imprudent decisions by the controlling owner that constitute breaches of fiduciary duties or fraud. Such investigations and discoveries of corporate mismanagement and fiduciary breaches can lead to derivative lawsuits in the name of the business and even a direct award of the minority owner’s share of company’s damages. 

Conversely, majority owners can use their decision-making authority to re-invest in the business and pay reasonable compensation to day-to-day personnel such as themselves rather than returning profits to investors, leaving their minority partners with the tough decision of whether to sell for less or continue to own the business with little or no profit distributions. Stated simply, even when partners fail to consider the possibly of divorce in the beginning, partnership divorces can sometimes be accomplished without costly litigation through preparing and positioning for a successful negotiation. 

Attorney Shawn A. Johnson has extensive experience in business divorces representing minority, majority, and fifty-fifty owners and owner groups to effectuate partnership breakups.  If you find yourself needing a business divorce, contact Mr. Johnson to assess your options and your next move.