Every company has them, but how can you handle those really gruesome, terrible, partner disputes that alter the nature of how you do business? You have many options and hopefully you’re able to resolve the issue before having to resolve to some of the more nuclear options outlined below.
- Setting Expectations
The best way to avoid conflict among business partners is by setting clear expectations. It is when one partner has an opinion on how the company is run and another partner has a completely separated opinion that disputes arise.
Whether it’s in the form of a governing document or in a series of emails, all that matters is there is a clear agreement as to the expectations from all partners in the company. You especially want to focus on the following items:
- Adding/removing partners
- Selling the company
- Member Rights
- Dispute Resolution
- Governing Document
Your governing documents not only set expectations among the owners of the company, but they also set up the legal rights and responsibilities, as well as what happens when there are partner disputes.
Corporations have bylaws, shareholder agreements and share plans, limited liability companies have operating agreements and partnerships have partnership agreements.
Using governing documents is the best way to not only avoid having a partner dispute but also outline what will happen in the event there is a partner dispute to eliminate unnecessary cost and emotional turmoil. Ensure that you outline the limits you want to place on management as well as limits placed on owners.
Litigation is the more nuclear option. Especially in smaller companies, when one owner brings a lawsuit against the company or against other owners, the damage to the trust will be virtually impossible to repair.
Under North Carolina law, shareholders of a corporation, members in a limited liability company and partners in a partnership all have guaranteed rights as the owners of the company.
- In Corporations, shareholders can bring suit to dissolve under N.C. Gen. Stat. § 55-14-30.
- In Corporations, shareholders can also bring suit to enforce any of their rights under N.C. Gen. Stat. Chapter 55 or those granted in the company’s bylaws or under a shareholder agreement or plan.
- A Partner, in a General Partnership or Limited Partnership can enforce their rights under N.C. Gen. Stat. Chapter 59 or in a partnership agreement.
- In an LLC, members may bring a lawsuit to enforce any of their rights under N.C. Gen. Stat. Chapter 57D or those rights defined in an operating agreement.
- An LLC may be dissolved by a member through the Court under N.C. Gen. Stat. § 57D-6-02 if it is necessary to protect the rights and interests of the members or its not practical continuing operations of the company.
Mediation is a viable option for a Partner Dispute when the dispute hasn’t completely destroyed the relationship. It can also be specified in the company’s governing document that partner disputes are handled in mediation before litigation.
Whenever possible, mediation is recommended opposed to going straight to litigation so you can preserve a relationship where one existed.