When two or more individuals agree to go into business together, they may choose to form a partnership. Partnerships offer individuals many benefits and opportunities that might not be available to individual business owners. Often, New Jersey partnerships start with the best intentions and every partner working toward establishing a successful business.
Unfortunately, in some partnerships, unanticipated internal obstacles might arise that hinder a partnership’s success or a partner’s interests. Business disputes often arise. In some cases, a simple negotiation can resolve a dispute between partners; however, in other cases, the dispute could drag on for years in a New Jersey court. An experienced business disputes attorney in New Jersey understands the many strategies available to a partner in a business dispute and could help fight to protect a partner’s interests.
Partnership Agreements
The most common place to search for a resolution when a dispute arises is in the partnership agreement. Partnership agreements contain terms relating to the rights and responsibilities of each of the partners and the potential remedies or resolutions if a partner’s rights are violated. For this reason, it is important to draft a clear agreement and specifically define the rights of the partners at the onset of the partnership.
When a partnership agreement does not exist or is not clear about the rights, responsibilities and remedies of the partners, the partners may not be adequately protected in certain disputes. For example, a partner might feel as though they are being oppressed or frozen out by the other partners. If a freeze-out or similar dispute is not referenced in a partnership agreement, a minority partner could quickly find it tough to continue in the business.
A knowledgeable New Jersey business disputes lawyer could work with a partnership to establish an agreement that is fair and protects each partner, or help determine a partner’s rights and options under a previously drafted agreement.
Common Signs of a Partner Freeze-Out or Oppression
Freezing out or minority shareholder oppression of one of the partners in a partnership is a common type of internal business dispute. A freeze-out typically occurs when two or more partners, or a majority partner, attempt to deny another partner, or minority partner, from exercising some or all of their rights in the partnership. The oppressed partner is often denied the right to make decisions or manage the company, and in some cases, the right to collect profits from their ownership interest in the partnership.
Some of the common signs that a partner is being frozen out or oppressed include:
- Removal of a partner from management position
- Dilution of a partner’s ownership interests
- Refusing to declare dividends or distribute profits to a partner
- Taking away decision-making powers of a partner
- Misappropriation of assets to harm a partner’s interests
- Lack of communication with a partner
- Denying a partner access to the business premises or materials
- Attempts to buy a partner’s interests at a reduced value
Many partnership agreements contain buyout provisions to aid in situations where the partners no longer wish to continue working together; however, a freeze-out rarely involves the consent of the oppressed partner to be bought out of the partnership. If a partner begins to notice any of the common signs of oppression or a freeze-out, it is crucial to reach out to a seasoned partnership disputes lawyer in New Jersey to take steps to ensure all rights and interests are protected.
What Steps can a Partner take to Resolve a Business Dispute?
New Jersey provides options if a partner believes the other partners are trying to force them out of the business or prevent them from exercising their rights. The first step should always be to check the partnership agreement for any specific protections that could be helpful and prevent a dispute.
When a partnership agreement does not provide adequate protections or does not exist, the next step for the oppressed partner is to determine whether they want to continue working in the partnership or if they want to move on. Additionally, the actions of the other partners could dictate the steps an oppressed partner takes to protect their rights. In some situations, a partner might change the locks on the business and change all the passwords to prevent another partner from accessing any part of the business. In other situations, the oppression might start out as minor undermining of a partner’s authority or rights.
If a freeze-out involves preventing the oppressed partner from accessing the business or any of its systems, pursuing an injunction from a New Jersey court could be a necessary step to ensure access to the business. New Jersey courts typically look at the formation documents for the partnership and how the partners ran the business prior to the freeze-out to help determine if an injunction should be granted.
When a freeze-out or oppression results in substantial damage to the partners’ relationship, the oppressed partner may decide it is not worth remaining in the business and seek a buyout. The buyout process can be relatively straightforward if a partnership agreement clearly defines the compensation for a partner who leaves the partnership. Unfortunately, buyouts are generally not simple and oftentimes require the assistance of a New Jersey court and a well-versed New Jersey business partner disputes lawyer.
Contact a New Jersey Business Dispute Lawyer Today
When a freeze-out or oppressive behavior causes a partnership to break down and results in a strain on the business relationship, a minority partner could be left facing a tough dispute. Fortunately, there are resources available to an oppressed partner to help protect their rights and interests in the partnership. An experienced New Jersey business dispute attorney could help determine the potential options available to a partner and protect their rights when facing a freeze-out or oppressive behavior.
