A high business “tide” does not necessarily float all boats. Often, when business is good and profits increasing, a business owner’s desire to share those increasing profits with an underperforming partner can create an irreconcilable divide; particularly in the case of a partner not intimately involved in the day to day operations of the business. Similarly, more difficult economic times stress cash flow and may motivate a performing partner to explore options to decrease or eliminate that portion of the business income flowing to those performing at a lower level. Of course, the lesser performing partner generally adopts a contrary perspective. In either case, the divergence between two or more partners can render the status quo unacceptable and threaten the business as a going concern.
In approaching disputes among shareholders several factors must be considered. First, what are the respective goals of the parties? Certainly, the long term goal of extracting the most gain in income or the value of the investment is the goal of all the parties, but short terms strategies can have a dramatic and sometimes unintended consequence. Second, what does the controlling agreement, if any, provide in terms of a basis to remove or force a sale of a partner’s interest? Significantly, there is no statutory right or method for the involuntary removal of a shareholder (arguably, such a remedy may be available in a Partnership or Limited Liability Company setting) Third, what is the long term impact of the potential short term strategies not only on the business but also on the individuals? Financing arrangements and personal guarantees must be considered. Finally, the respective rights and obligations of the shareholders post dissolution must guide the process.
Of course, potential courses of action do not come without risk for either side of the equation. An internal business dispute can result in a loss of control over business operations or expensive and distracting litigation. The team at AMM offers a depth of knowledge and experience to guide a business owner’s decision making process and to devise and implement strategies to maximize outcomes and manage risk.