This depends on the situation and should definitely be considered when deciding to litigate. Often times the expense and distraction caused by litigation outweighs any ultimate benefits that might be obtained. Also, whether it is fair or not, the partner that controls the funds of the business or has more personal resources may have more leverage over the partners that do not have control or resources. Obviously, it is very important to be able fund any legal action you commence to conclusion. Therefore, if a partner lacks the necessary resources to litigate, they should think twice before embarking on litigation. Absent theft of funds or other serious wrongdoing, litigation should really be a last resort in almost all cases.

Is The Breakup Of A Business The Same As A Dissolution?

The breakup of a business can be the same as a dissolution, but not always. An example of a breakup could be when there are three owners and one of the owners buys out the other two. That is technically a breakup of the business, because two thirds of the owners are not going to be participating in the business after their interests are sold. There are many ways a breakup can occur without requiring dissolution. If you have an ongoing business that is successful and one or more owners no longer want to be a part of it for any reason, then those owners can be bought out. Another example of a breakup is when a business is not doing well financially and files bankruptcy or dissolves without a bankruptcy. There are many different ways a business can technically be broken up.

What If I Forced My Partners To Either Buy Me Out Or Sell Their Shares Of Our Business To Me?

It’s important to review the governing documents of the business and any other agreements that may relate. You should also have an experienced attorney review them, as well, so that you have a second opinion. An important document that should be a part of many companies’ governing documents is a buy-sell agreement. A buy-sell agreement sets forth the terms and conditions under which the owners can buy each other out upon a death or unanticipated departure from the business. Given that the owners can’t predict how things will turn out for the business and their relationship, buy-sell agreements can be important for many reasons and avoid uncertainty.

Also, most well-drafted operating agreements and bylaws contain provisions governing how one or owners can acquire the interests of another owner in other situations Generally, these provisions require the owner who wants to buy or sell to propose a price for the shares they want to acquire/sell. However, if the potential buyer/seller and the other owners can’t agree on terms, most governing documents allow the owner to solicit offers from third parties outside of the business.

What Can I Do If I Suspect My Business Partners Are Engaged In Illegal Activity?

It’s almost certain that if someone is engaged in illegal activity that’s going to be contrary to what the governing documents provide. The governing documents should allow for actions to stop the illegal activity which usually means going to court. For instance, if the partner is a manager, officer, or director, etc., there may be rules that allow the other partners to oust that partner from that position. In many cases, if the partner no longer holds that position, they may no longer be able to act in an official capacity for the company.

For example, if someone is ousted as an officer or manager, they likely won’t be able to access the company bank accounts. Most illegal activity an individual accessing company funds without authorization. If that is not possible, and there are no express terms that allow the other owners to strip the offending owner of their powers, they would need to go to court to get an injunction, which is an order preventing the offending partner from continuing the illegal activity.

There could also be other ways to temporarily freeze bank accounts. For instance, there may be rules in your banking contract that allow one authorized signer to freeze an account. You would have to check with your bank in a situation like that. It is important to understand that the governing documents of the company as well and any other agreements in place set forth what rights the owners have when disputes arise and how best to enforce those rights.

For more information on Suing A Business Partner In California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 594-6322 today.

Art Matthews

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