Disputes between business partners in California can create significant challenges, regardless of the company’s size. These disagreements can stem from conflicting goals, differences of opinion or misunderstanding.
It is crucial to resolve partner disputes effectively so they do not damage the relationship or the business’s success. Several strategies exist, depending on the nature of the dispute. The following approaches can help manage conflicts and guide the best next steps for the business.
Suppose business partners wish to continue working together. In that case, a third-party mediator can work as a liaison to bring the two business partners to a new level of understanding regarding how their business and relationship should operate. This cost-effective solution can help the partners get past negative communications and define new goals and responsibilities, resulting in a plan that addresses the desires and needs of each partner.
Sell the business
If business partners cannot resolve their differences, one partner can sell their stake to the other partner or partners. The price would be guided by an existing buy-sell agreement or a valuation analysis performed by a neutral third party.
The partners may decide that none of them wish to run the business, and it makes more sense to find a buyer who will purchase 100% of the company. A third-party valuation is essential to support a buyer’s purchase price and legal and tax counsel to follow applicable business laws and assist with the transaction.
Business partners often have conflicts because the business is not performing well. When a company becomes insolvent, with more liabilities than assets, the best course of action could be filing for bankruptcy protection. The partners might choose to re-organize the company depending on various factors or have to fully liquidate the business to pay off creditors.
Some business partners may choose other strategies to navigate the partnership’s future, such as voluntarily dissolving a company when the operations and the business partnership are no longer salvageable. When majority partners want to remove a minority partner, they can “freeze out” any minority owners by paying them fair market value for their interest and merging the company with a newly created entity owned solely by the majority partners.
Finally, some partnership disputes involve misconduct in the form of fraud, breaches of fiduciary duty or failure to satisfy responsibilities and obligations. In these scenarios, a partner can file a legal claim to seek financial damages from the other partner or partners.
Awareness of the available options and strategies can help business partners work through issues and seek more effective resolutions.