Partnership Disputes

What should you do when you encounter a dispute with your business partner that cannot be resolved? Partnership disputes generally occur when partners can no longer agree on the running of the company. When partnership disputes occur you need an attorney to help protect your interests and ensure a fair dissolution or resolution of the dispute.

At Gana LLP, we can help you resolve your partnership dispute and achieve the resolution you deserve. Below, we have compiled some answers to some common questions our clients have.

What rules govern my partnership dispute?

Most partnerships are based upon a signed agreement that lays out the terms and conditions of the partnership. However, a partnership does not require a written agreement in order to exist. If there is an agreement, the document will determine the partners’ rights, responsibilities, and on what terms a partner can withdraw or dissolve the partnership.

If there isn’t a written partnership agreement then a partner can withdraw at any time under New York Partnership Law. The withdrawing partner is also entitled to have his partnership interest bought out.

What if my partners are excluding me from partnership business?

Under most state laws, a partner has a right to manage and be involved in the partnership. This right includes a right to see the books and records of the partnership. Excluding a partner from the business of the partnership can be a ground to dissolve the partnership.

What if I am a shareholder in a corporation and believe that I am being excluded from the company’s business?

Similarly to a partnership, the first step is to refer to the shareholder agreement’s terms. Often the shareholder’s agreement will spell out the shareholder’s role in the company’s management. If there isn’t a shareholder’s agreement then, as a stockholder, you have a right to the reasonable expectations of your investment in the corporation.

A shareholder’s reasonable expectations include the right to a return on your corporate investment. Courts will take into consideration dividend payment history and shareholders salaries to determine whether the shareholder has been treated unfairly. If you are a shareholder who does not contribute labor to the company and are still not being paid dividends or salary it may be grounds for a court to consider shareholder oppression.

I am a minority shareholder of company and believe I am being oppressed, now what?

Shareholder oppression can be a basis for an action for recovery and dissolution. In New York, if you, or collectively with others, own 20% of the stock of a privately held company you can bring a suit to dissolve the corporation. A determination of oppression is a fact inquiry that focuses on how the corporation is being managed by controlling shareholders. If the majority of shareholders are denying the reasonable expectations of the minority of shareholders, a court may order the liquidation of the company.

If you are the majority shareholder and are subject to a dissolution suit, the majority shareholder can either dispute the fact that there has been oppression or elect to buy-out the shares owned by the petitioning shareholder for the fair value of their interests. The “fair value” means what a willing purchaser would offer to pay for the shares in the corporation as a going concern. The purchaser can either be the company or any of the other company shareholders.

What if I own 50% of the corporation, can I still bring a suit to dissolve the company?

Yes. If the shareholder can establish oppression, waste, or looting by the other shareholders a 50% shareholder can have grounds to seek dissolution of the corporation. Also if the shareholders are deadlocked at a 50-50 vote New York statute permits a petition to dissolve the company on grounds of the deadlock. However, the deadlock must be about issues that are key to the company’s management. Also, in defending a deadlock suit there is no right to buy-out the shares of the petitioner.

Can a member of a LLC seek to dissolution?

Under New York law there is a limited right to dissolve an LLC where it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement. This section has been interpreted to exclude oppressive conduct against the member as ground to dissolve an LLC. However, if a member’s operating agreement may contain additional grounds for dissolution not contained in section 702.

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