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Shareholder, Member, and Partnership Disputes

two businessmen having an office meeting

Different kinds of businesses have different names for ownership.  In a corporation, you have shareholders; in a limited liability company, you have members; and, in a partnership, you have partners.  For purposes of this article, however, we will just refer to “Partners.” 

Going into business with a partner can be great. Two heads are often better than one. Working with a friend can be fun. And you’ll have access to someone else’s knowledge, skills, experience, and contacts.

But taking on a business partner carries risks—even if your new business partner is a friend you have known for a long time and who you trust.   

Fortunately, many disputes with a business partner can be easily avoided through proper planning and a small investment of time and money. If you are considering going into business with a partner, or are concerned about disagreements with your partner, it is wise to work with a skilled and experienced business partnership dispute lawyer.  You need a partnership dispute lawyer who understands your business, can advise you on your options, and will help you find the quickest resolution possible.

Types of Shareholder, Member, and Partnership Disputes

Shareholder, member, and partnership disputes commonly arise when people with a financial interest in a business disagree about how decisions are being made, or have concerns about accounting methods or how profits are being distributed. Here, we describe some of the most common reasons that business partners disagree. While these are the most common business disputes, there are countless other disputes that can arise. By working with an experienced shareholder, member, or business partnership dispute attorney, you can avoid some of the most common causes of business partnership disputes, avoid making the dispute worse, and work towards resolving the disagreement.

Unfair Prejudice

Unfair prejudice occurs when a minority owner claims she or he is being mistreated by the majority shareholders, or majority shareholders claim that a minority shareholder has an improper amount of influence. 

Misinterpreting Organizational Documents or Partner Agreements

Partners or shareholders may disagree over how organizational documents or agreements between owners should be interpreted, especially when the rights of one partner are at issue.

Misrepresentation

A partner may wish to set aside the partnership agreement, or seek to recover compensation based on misrepresentations made by other parties to a transaction.

Disagreements Over Contributions

Disagreements over contributions arise when one partner feels that another partner is not making an appropriate contribution, or perceives that the workload is not fairly distributed. 

Difficult or Uncooperative Partner

Shareholders may wish to expel a difficult or uncooperative partner from the business in an effort to resume smooth business operations.

Disputes Over How to Use Resources

Partners may disagree as to how to best use financial resources, such as whether or not to purchase new equipment.

Breach of Fiduciary Duty and Usurpation of Opportunity

When business partners certain members failed to meet their fiduciary obligations to act for the benefit of the business, including taking opportunities of the business for themselves, they may claim a partner breached his or her fiduciary duties to the business by putting personal interests first or failing to act in a reasonable and prudent manner.

Avoid Common Shareholder, Member, or Partnership Disputes

A business can be formed with or without a written agreement. When there is no written agreement, the business is governed by state law. Each partner has duties and obligations to the other partners, and if one partner breached his fiduciary duty to the others, a business partnership dispute could arise.

A written agreement can prevent many business partnership disputes by clearly defining who has control over the business, how much control each partner has, and specifying each partner’s roles and responsibilities.  A well-written shareholder or business partnership will also detail each partners’ contributions and how they will be handled, how decisions will be made, how partners will be compensated and profits distributed, wehat to do in cases of conflict, when and under what circumstances ownership may be changed, valuation of ownership and buyout terms, and how the partnership can be terminated.

How a Business Dispute Attorney Can Help

If you are considering going into business with a partner or adding shareholders to your business, consult with an experienced business partnership dispute lawyer first. And if a shareholder or business partnership dispute has already come up, contact an attorney as soon as possible. 

An experienced shareholder and partnership dispute attorney can help you avoid many of the common disagreements in business partnerships. Taking the time and spending the money to have proper organizational documents prepared can save you thousands of dollars down the road. It is just good business sense to spend a little money now to get things right, rather than spend a lot of money later to fix a problem that could have been avoided.

If there is a disagreement, you need to make time to discuss the problem with your partners. Rather than trying to schedule a meeting during the day, when there are likely to be distractions, schedule time after hours, or over dinner or coffee to have a calm and rational conversation to try to resolve your differences. When you discuss the situation, focus on finding a solution to the problem, not on placing blame. Talk about the outcome you want, why you believe it is best for the business, and try to persuade your partners why your proposed solution is right. But be open to other suggestions, as compromise is a key to successful dispute resolution.

If the disagreement gets worse, it might be time to bring in professional help. When business partners disagree, working with a business partnership dispute attorney can help.  Options can include hiring a lawyer to advise the company as well as the various owners having their own legal counsel.  An attorney can help you understand your rights and obligations, and ensure that you follow the businesses organizational documents. And if terminating the business or partnership is the only way forward, an experienced business dispute attorney can explain and help you evaluate your options.

At Fremstad Law, our business law attorneys will take the time to learn about your business so that we can respond to your questions and offer sound legal advice in a timely and meaningful way. While our goal is to avoid litigation, when necessary, we have the experience and expertise to handle all manner of business litigation claims.

North Dakota and Minnesota business litigation attorneys  Joel Fremstad, James Teigland, Mark Western, Brandt Doerr, and Nick Thornton are here to help move you forward through a shareholder or business partnership dispute. Learn more about our people, our mission, and our services, then contact us today.

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