Partnership Disputes: Divorce of the Business World
In today’s complex business environment, even the best often do not get far by themselves. As appealing as it may be to start and run a business independently, working as a team allows partners to pool their resources, cooperate, and synergize. In the business world, more heads are better than one. Partners bring in outside expertise, share complementary skills and backgrounds, contribute capital, and serve as a confidant and teammate. So, what’s there to lose?
Business Disputes are On the Rise
Sadly, as much as we may not want to think about it, business partnerships often turn sour. According to Forbes, whereas approximately 50% of marriages end in divorce, the percentage of business partnerships that end in divorce is closer to 80% (Footnote). It can be easy to disagree with partners, misunderstand relationships, misconstrue expectations, and fall out with those you work with, particularly in hard or stressful times. Maintaining a relationship in such a high stress, high stakes environment can prove more difficult than many assume. In fact, you may have even heard the piece of advice “Never do business with friends and family” for this very reason.
Such partnership troubles were recently seen in national headlines. Microsoft’s Bill Gates and Paul Allen, Facebook’s Mark Zuckerberg and Eduardo Saverin, Citigroup’s Sandy Weill and Jamie Dimon, and Apple’s Steve Jobs and John Sculley are just a few. And those are only examples of the businesses who survived their partnership breakups!
The Dangers of Partnership Disputes
Disputes such as these pose big implications for businesses of all sizes. Lengthy law suits, expensive dispute resolution proceedings, and the opportunity cost of not being able to run your business are just a few. A partnership dispute can seriously affect a company’s bottom line, pull business partners apart, and drive whole companies into the ground.
Disagreements can be particularly dangerous for minority partners. Occasionally referred to as a “squeeze out” or “freeze out”, majority shareholders of corporations can buy out the shares of minority shareholders in order to take over control of business operations. Rather than in the capital market, a squeeze out can also occur through the legal system when business partners litigate and seek to remove other business partners. Without the proper protections, an unprepared business partner can find himself removed from his own company and out on the street.
How can I Protect Myself?
But, all of this doom and gloom is no reason to run from every business partnership that comes your way. A well-researched and well-established partnership can make the difference between a business’s failure and its success. A trustworthy legal advisor is crucial and can provide your business with:
- A solid operating agreement
- Clear dispute resolution procedures
- Consultation on the business rules of your region
- Strong representation if litigation is necessary
Hiring an attorney is an investment in the future of your business. Just like a prenuptial agreement protects a marriage, preparing for future disputes now protects your business from uncertainty down the road. Although it may seem uncomfortable, a good operating agreement could mean the difference between your business’s success and thousands of dollars of stressful litigation.
Just recently, our firm represented a client in a high stakes partnership dispute arbitration with millions of dollars on the line, which dispute could have been avoided through proper documentation earlier in the relationship. We offer our clients real world experience creating iron clad operating agreements, mediating partnership disputes, and representing business partners in complex litigation matters.
Feel free to contact us anytime. We look forward to helping protect your business and resolve existing disputes.
Amanda Neville, Why Partnership is Harder than Marriage, Forbes Magazine (Mar 1, 2013), https://www.forbes.com/sites/amandaneville/2013/03/01/why-partnership-is-harder-than-marriage/#4dcd682e7ec9.
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