Partnership and Shareholder Disputes
Sometimes business partners just do not get along. There can be a variety of reasons why this happens. In many cases, partners do not define their respective expectations prior to the start of the business in a written shareholder or membership agreement. Oral partnership agreements are surprisingly common and often lead to disagreement, uncertainty and conflict among business partners.
The disputes among partners which often develop with respect to oral agreements most often concern distributions, percentage ownership, governance issues, executive compensation, day to day management of the business and questions which arise with respect to which partner or partners are making the greater time commitment to the business. Even in cases involving written agreements, there is often room for disagreement between partners with respect to the meaning of the agreement and whether each of the partners has complied with it. Partnership and shareholder disputes can develop both when the agreement is written and when it is oral.
Business partners generally owe “fiduciary duties” to the partnership or corporation. There are many reasons why one partner may be considered to have breached their fiduciary duty to the corporation or partnership. Examples of circumstances in which one partner may be considered to have breached his or her fiduciary duty are as follows:
- one partner is paid excessive compensation without the knowledge or consent of the other partners
- one partner diverts business opportunities away from the business to another business in which he or she has an interest without disclosing it and obtaining the approval of the other partners.
- competing with the corporation without prior disclosure by an officer, director or shareholder
- misappropriation of funds from the business
- diversion of corporate opportunities when one shareholder learns of a potential investment and, rather than sharing it, takes it for himself.
These are only several examples of the things which can happen among business partners which may lead to discord and, ultimately, litigation. Businesses faced with these issues should enlist the services of competent counsel to negotiate a timely and cost effective resolution to these problems and to file suit when necessary. The attorneys at Haber Slade regularly represent both majority and minority shareholders, and often the company itself, in matters involving the following:
- Breaches of fiduciary duty by shareholders and officers
- Conflicts of interest
- Shareholder Derivative actions
- Minority shareholder rights
- LLC member rights
- Partner rights
- Management compensation issues
- Unfair buy-out agreements
- Failure to pay dividends or distributions
- Management deadlocks
- Member or shareholder freeze-outs
- Appraisal rights
- Corporate or partnership dissolutions
Lawsuits and shareholder derivative actions are specialized areas of practice. The proper evaluation of these cases requires both business acumen and the analysis of a skilled professional. Haber Slade has recently represented shareholders in matters involving the prosecution of claims against a rogue employee who has taken over the business upon the death of the principal. Other cases recently handled include a dispute among the principal of a closely held business and a former shareholder who is claiming an oral agreement to convey a shareholder’s interest. The firm is currently representing the owners of a Miami nightclub in a case in which the founding partners is being accused by the owners of stealing from the business and mismanaging it. These are but several examples of the types of matters handled by the Haber Slade Litigation Department.