There are a few common sources of conflict in partnerships, and usually they are the same ones that apply to members of limited liability companies, shareholders of corporations and other ventures. Some common sources of conflicts would be issues related to who controls the entity and its assets. Probably the most common examples of a conflict is when one partner/member accuses another of misusing company funds. Another common conflict is when members contribute different forms of compensation. For instance, some of the involved parties might be putting in sweat equity while others only contribute money. This could lead to a dispute when those that provide only sweat equity are not putting in the expect amount of time or performing as expected.
There could be conflict among majority and minority owners of a business. For example, if there is unequal ownership, the minority owners who hold less of the business might feel that they are not treated fairly by the majority owners. We have seen this situation arise numerous times over the years.
Another issue that arises is whether a patent, idea, trademark, etc. that was developed by one of the owners belong to the individual or the company. If the company received compensation from intellectual property that an individual brought to the company and that individual believes they are being treated unfairly, that could lead to potential resentment and disputes.
Should I Pursue Litigation Or Try To Work Out A Dispute With My Business Partner?
It usually makes sense to try and work out issues with business partners before resorting to legal action. We explain to clients that filing a court case can be very time consuming and expensive.
There are times, however ,when immediate legal action may be necessary without first trying to resolve matters informally. One example is if a partner is suspected of misusing or stealing company funds. If you alert the partner that you are aware of the possible theft, they could take all the money from the business, further escalating the situation. This scenario is not very common, but it does happen. Once those funds have been taken, it will likely be more difficult to recover them than it would have been to stop the misuse at an earlier stage. In these cases, it is usually better to go to court without advance notice to the other partner.
In any case, it is best to consult your attorney immediately for their advice. You might choose not to let your partner know that you’ve hired an attorney before you speak with them, but you do need to know your rights and obligations before moving forward. You especially need to be sure you are moving through the process legally and correctly in case your partner might generate be taking action that could impact company or even you personally. Please be sure to document that you do not approve any questionable actions of your partner(s), in order to reduce the possibility of individual liability. In cases involving fraud or embezzlement, you want to minimize the chance of legal action being taken against you personally.
For more information on Conflicts In Business Partnerships, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 647-7110 today.
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