Resolving Partnership & Shareholder Disputes
Resolving a Partnership Dispute in Colorado
When you began your business with your partner (or partners) or bought into a company as a shareholder, you probably never envisioned a day when you would need to part ways under less than amicable circumstances.
If the business relationship between you and your partner or shareholders has reached an irredeemable point, a business attorney can help you resolve the dispute in a variety of ways.
Here are a few of the options you can pursue to resolve an ownership dispute:
- Partnership/shareholder buyout
- A lawsuit for breach of fiduciary duty
- A lawsuit for enforcement of the operating or shareholders’ agreement
- Dissolution of the business
A resolution to a partnership or shareholder dispute is often a buyout. This is when one or more partners or shareholders buy out the share of the other person’s portion of the business.
Here are the questions to consider when seeking a buyout:
Q: What does your operating agreement say regarding a buy-sell clause?
Reviewing buy-sell provisions between the owners is the initial starting point for determining the owners’ rights in a buyout. Buy-sell provision can be found in buy-sell agreements, shareholder agreements, articles of incorporation or organization, and operating agreements.
Buy-sell agreements can call for a “Russian roulette” provision (a provision whereby each party has the right to make an offer to the other party), arbitration, mediation, or a variety of other contractual arrangements between the parties.
Q: What is your ownership position in the company?
Likewise, the owner’s equity position in the company can directly bear on their right in a buyout. A majority owner can use mergers to “freeze” out the majority. The minority shareholder or partner has certain minority owner rights under Colorado law.
Q: How can you reduce or minimize future liability from the other partner?
A critical component of a buyout is to ensure that you minimize future liability. This is accomplished by proper indemnification provisions in the buyout agreement. Without this protection, you could face liability to creditors, taxes, and other unwanted consequences of the business divorce. Remember, until the buyout is complete, you likely share the same liabilities as your partner.
Q: Do you have the proper representations and warranties?
If you are buying out your partner, have you required them to sign a noncompete agreement? Have you ensured that they will not take trade secrets with them in competition against you? If you are being bought out, do you know your rights regarding noncompete agreements, and is the amount of your share at fair value?
Q: How do you determine the value of the portion being bought?
Is it based on market conditions or projected conditions? Have you considered all possible assets and their values? Should the value be determined on the maximum, minimum, or average value of the market? We can help you navigate these potentially contentious areas.
Dissolution of business
Sometimes a buyout is not an option, for a variety of reasons. In such cases, the dissolution of the business might be the next-best option. When dissolving a business, it is important to consider the following:
- Who gets which assets?
- Are the assets split evenly or proportionally?
- How can you minimize your liability if your former partner acts unethically while dissolving the business?
- Is a noncompete agreement worth pursuing in this case?
- How can you leverage your position to start a new venture in the wake of this dissolution?
Our attorneys have handled many cases of business dissolution and can help you think through every possible nuance while wading through the process by your side.
What if your partner, partners, or fellow shareholders oppress you by locking or forcing you out? If this is your situation, it is important that you know your rights as the majority, minority, or shared owner of the business; you also need to know what the potential recourse might be.
We can help
Ownership, partnership, and shareholder disputes can cause you an enormous amount of stress, money and time. Our business attorneys have the skills and experience to help you mitigate all three. Contact us for an assessment at 303-688-0944,