How are Partnership Disputes Resolved?

More often than not, when business partners get into a fight, emotions run high because you are friends or family with your business partner(s). So what happens when there are partnership disputes? Like all things legal, it depends.

These options by the National Law Review are a good place to start: 

Mediation: If you decide this dispute won’t put the final nail in the coffin of your business, you can enter into mediation. Mediation is an inexpensive way to resolve disputes. Through a third-party mediator, business partners can come to an agreement and continue the business.

Buy-Out: If it is decided that one partner will exit the business, but the business should continue under the other partner(s), a buy-out of the exiting partner is an option. If you executed a buy-sell agreement when the partnership was initially formed, simply follow the steps set forth in that agreement. If a buy-sell agreement was not executed, there’s some work that needs to be done. First, have a valuation of the company completed, so all partners know what their interests are worth. Then, negotiations of the buy-out terms begin. 

Sell-Out: In some instances, all partners will agree to walk away from the viable business and sell it to new owners. A valuation of the company is an important step in a sale, so all partners know what their interests are worth. 

Freeze-Out Merger: Majority owners can freeze out minority owners. This tactic is nuanced and relies heavily on statute and precedential court opinions. So, be careful with this option.

Voluntary Dissolution: If the business relationship cannot be saved, voluntary dissolution is an option. Parties can agree to the dissolution and file the necessary paperwork with the State of New Jersey. Of course, creditors will need to be paid, remaining assets will need to be sold, and proceeds will need to be distributed. 

Judicial Dissolution: If the parties cannot agree on dissolution terms, a lawsuit will be filed. At this point, the parties no longer have control over the terms of the dissolution and must adhere to the judge’s decision.

Bankruptcy: Like in personal relationships, money is often the root of business disputes. When the business's liabilities are more than the assets, bankruptcy is likely the best option. Through bankruptcy, a business can either restructure its debt and continue operations or do a full liquidation and dissolution of the business. 

Litigation: Misconduct by partners can result in litigation. Filing a lawsuit against a partner for violating their obligations to the other partners or the business can result in awards in financial damages to those who filed suit. 

Partnership disputes can be unpleasant and stressful. Therefore, whether your business is facing an amicable or messy business divorce, talking with an experienced business attorney can put you on the best path.