It is important to prepare for what mediators call the "rights conversation." Take a look at your shareholders agreement, partnership agreement or LLC agreement, as well as any certificate of incorporation or formation and bylaws and any employment or related agreements. These documents together provide guidance on who owns the business, who runs what part of the business, how profits and losses are allocated, whether and how ownership interest can be transferred, partner deadlock and other matters. Applicable state law may fill in the blanks if the documents do not exist or do not address particular circumstances. All this provides the legal background for your discussions. Keep in mind, though, that no matter how clear the documents seem your partner may read them differently or be able to raise legal defenses. Also keep in mind that the root of your conflict may be that you and your partner need to work out a different arrangement.
Begin to Explore What your Really Want From The Situation
You should also prepare for what mediators call the "interest conversation." Think about what you would ideally like to have happen. Do you want a particularly thorny issue resolved so that you can move on profitably? Do you want to find a way to reduce conflict generally so you can continue to work together? Do you want your partner to buy you out at a fair value? Do you want to buy your partner out at a fair value? Do you want to sell the whole business? If you did manage to work something out with your partner, what would that look like? Think about what your partner's answers to these questions might be, too.
Consider Whether Operational Changes Can Resolve The Dispute
Differences between principals can be a source of vitality and new direction within a business, if there are mechanisms to resolve them. Sometimes changes in operations can reduce friction and allow the business to move forward. When you speak with your partner, think about how management and operations might work in a new version of your business that you both could live with. For instance, many businesses start out without clearly drawn lines of responsibility and even in those that do responsibilities evolve over time. If you and your partner decide which of you is responsible for a particular disputed aspect of the business, would it end turf battles, second-guessing and similar workplace unpleasantness? Consider how to present your position in a persuasive and non-confrontational way. Also consider whether there is something you can offer your partner to make a change more acceptable, like more internal resources or a different incentive compensation model.
Get Your Own House In Order
Partners, like spouses, can become volatile when their buttons are pushed. Be prepared for the possibility of mudslinging. Make sure any business records you are responsible for maintaining are in decent shape and that you are ready to address concerns your partner or his lawyer are likely to raise, including suggestions that you have enriched yourself, colluded with third parties or failed to attend to the needs of the business. People often allege fraud, conversion and breach of fiduciary duty out of anger at their partners. Litigators often advise people to make these sorts of claims in the hope that the prospect of expensive and potentially embarrassing discovery will motivate a favorable settlement. Consult with counsel about your legal obligations; it could be damaging if you accidentally purge inconvenient e-mails or other records. Remember that it may be in your interest to be the one making allegations - that is, if you are prepared for your partner to respond in kind.
Business As Usual
Do everything you can to keep your business running as usual. Otherwise, you run the risk it will not survive. You could also end up compromising legal claims against your partner, your credibility before the judge and the impression that you are operating in good faith. People are sometimes tempted to stay away from the office to avoid conflict or to stop taking their work seriously if they think they may be leaving. People who think they will be buying out their partners are sometimes tempted to defer sales or improvements to avoid increasing the value of the company and hence the buyout price. People are sometimes even tempted to sabotage the business out of spite. Be careful.
Be Aware Of Third Parties
Think about whether any third parties are important to the dispute. For instance, consider relatives who made a gift to capitalize the business, family members who work in the business or who are expecting an inheritance, spouses and in-laws, critical employees, third-party investors or lenders, and major customers or suppliers. If a third party encourages or enables a conflict, might the business become more functional if you found a way to neutralize its influence? If you are tempted to recruit third parties to your side of the argument, might news of the conflict decrease their confidence in the business and alienate some who are reluctant to choose sides? You should also think seriously about whether any third parties would be helpful in resolving the dispute. For example, bringing spouses into the conversation may be vital. You may also need the cooperation of third parties, such as lenders' consent to releasing a departing partner from personal guarantees.
Talking to your partner is the first step. You may find that a practical-minded lawyer can assist in exploring your rights and mapping out a negotiating strategy. If you find yourselves talking at cross-purposes or your personal relationship has significantly decayed, you can also try communicating through an informal go-between like the company lawyer or financial advisor. I often recommend that parties try using a neutral mediator, facilitator or conflict coach to help establish the framework for discussions early in the process. While it may seem uncomfortable at first to bring a stranger into the middle of the problem, an experienced intermediary can often assist the principals of a business in moving past a difficult impasse. In most cases, a negotiated, mediated or facilitated process helps the parties come to a resolution. Very few partner disputes need to go to court to be resolved, and most cases that do end up in court are settled before the final judicial decision.
If you and your partner are not able to come to terms, you may have options in court. You may have contractual claims related to organizational documents or employment agreements as well as the fraud, conversion or breach of fiduciary duty claims mentioned above. Of course, your partner might bring counterclaims to level the playing field, whether or not they hold water. Many state statutes provide for receivership of a standalone business in cases of partner deadlock. Indeed, the court may have little option under the law other than appointing a third party to take over and sell the company while ancillary claims work their way through the system. Although receivership can be a drawn-out, expensive process that drives down the value of the company, sometimes the full weight of the law is necessary to resolve the dispute. The statutes are there for a reason. People do make use of them, even if only as a strategy to get others to the negotiating table.
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