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Guest and Gray: Partnership Disputes

GuestandGrayLogoDallas, Forney and Rockwall are hubs for small to mid-size businesses that operate as partnerships. These areas are growing at incredible rates and businesses are flocking here because of the need for services. Because of this, Guest and Gray, P.C. is seeing a huge uptick in the amount of partnership disputes that have arisen as a result of the intense residential and commercial growth when the partnership has not worked out exactly as intended. Maybe you find yourself in this situation.

The truth is that you never thought this could happen and certainly never wanted it to, either. Does this scenario sound familiar: you and a long time friend or business associate opened a business together some years ago, and although things went well for the first few years, the relationship has soured and now it seems like an impossible situation every day you go to work. The environment has become hostile and the business is now suffering because of it. Does this sound like you? This is what is called a partnership dispute. The dispute can arise from management styles, business debt, or poor performance of one of the partners or business itself. It can also arise from one party acting on his own and taking partnership business or profits for himself. It can be the result of darn near anything.

Partnership disputes have almost the same feeling as a divorce. Although more than two people can enter into a partnership, the usual scenario is that two people started a business together and now there is some infighting or “infidelity” and the partnership is now suffering as a result. Now one or both of the partners want out. It essentially amounts to a business divorce.

However, a divorce of the partnership relationship may not always be required. Sometimes it is possible to work through those “irreconcilable differences” that you hear about in no-fault divorces. Now, “irreconcilable differences” in the break up of a business is not really the legal standard that is applied in this type of situation. No judge will ever issue a judgment on behalf of, or against, a partnership using that specific legal standard. However, from a practical standpoint, the first thing I look at is: can this company and this partnership relationship be saved? Based on the answer I receive from my client I then begin to set goals. Depending on how my client has answered, I can move forward with attempting to resolve the dispute between the partners to save the partnership as it currently exists, or I can look at whether a buy-out of a partners shares is possible. If neither is an option, we can look to selling the business for the partners. If that is not an option, then we look to winding-up the business itself. That is essentially the partnership dispute flow chart.

How Can We Do These Things?

Resolving the dispute amicably is always the first option to look for in a partnership dispute. If the dispute is based on management style or overlapping roles, it is possible for a sit down to occur and set clear boundaries for the parties in a written or amended operating agreement. Having a written operating agreement sets out the way the partnership will be run by its partners and sets clearly defined roles. If you are having problems with management of your business and do not have a written partnership agreement in place, this could be a business saver. If there is already one in place, but an adjustment needs to be made for the benefit of the partnership, then an amended operating agreement will do just as well. Although, you can find operating agreements online, these documents are important enough to your business that my advice is to always hire an attorney for corporate documents.

If the issue is with one or more of the partners taking actions that are a detriment to the partnership in some way, such as taking business for himself or herself or stealing profits from the other partner or partners, then it sounds to me like you could have a bona fide dispute on your hands that will need the help of an attorney to resolve. This can be resolved through mediation, arbitration or litigation. If you are involved in a business dispute where a partner has acted wrongfully towards another partner or the partnership itself, then you need to talk to an attorney about how to resolve these issues. These issues are usually contested. First we will need to look and see if there is a written partnership agreement and/or a written operating agreement between the partners. If there is not one, then we will need to look at how the partnership has been run in the past to see what each partners role in the business was prior to the dispute arising. From there we can pursue mediation, arbitration or even litigation to resolve the issue. This type of issue usually ends up with the partners winding up the business and moving on or one partner being expelled from the business and the other partner goes in as a sole proprietor. There are other options, but these are the two most likely scenarios.

If you are involved in a partnership dispute in the Dallas, Forney or Rockwall area, you need the competent, experienced help of the litigation team at Guest and Gray, P.C. Call today for a free consultation. Call 972-564-4644 Now!