Every company is prone to a partner dispute. How can you handle those terrible conflicts that alter the nature of how you do business? Fortunately, you have many options.
A partner dispute is anytime two or more partners disagree to the point it harms the business. This can appear mild, but often is a symptom of something much worse. For example, two partners may disagree on whether to hire a new admin. If one partner has the capability to block the hire, this can slow down the company’s growth.
The best way to avoid conflict among business partners is by setting clear expectations. Put another way, differing opinions between partners can cause major disputes.
Whether you use a governing document or a series of emails, what matters is the clear agreement as to the expectations. You especially want to focus on the following items:
- Adding/removing partners
- Selling the company
- Member Rights
- Dispute Resolution
Your governing documents set up the legal rights and responsibilities of the company and partners. For example, they allow you to specify who takes on which management roles. Additionally, they set what happens when there are partner disputes. Corporations have bylaws, shareholder agreements and share plans. Limited liability companies have operating agreements. 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.
Partner Dispute Litigation
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. Fortunately, you can specify, 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.
If you’d like help protecting your company from partner disputes, please feel free to contact us using the form below. Additionally, we can be reached by email at email@example.com or by calling (919) 912-9640.