Have you ever worried that your business partner is making major decisions about your business without consulting you? Has your partner tried to force you out or dissolve your California business partnership against your will? If so, you need to talk to a business lawyer right away to protect your rights as a partner.
Having a business partner you can’t see eye-to-eye with can quickly derail your business. When one partner starts making unilateral decisions, it can undermine your partnership agreement, create business conflicts, and even lead to costly litigation down the road.
Read on to learn what to do when your business partner is making important partnership decisions without you in California.
What Should Every Partnership Agreement Include?
A well-drafted partnership agreement is a legal document that governs the business relationship between partners. It outlines each partner’s specific responsibilities and rights, including the process of making major decisions.
Without a written agreement, disputes may arise if one partner starts making important decisions without the consent of the other(s). For instance, a business partner may make decisions concerning the business property, the direction of the venture, or even the dissolution of the business. In such cases, a partnership agreement provides clear guidelines for resolution.
What Are Your Rights as a Business Partner in California?
First, it’s important to understand your legal rights and responsibilities in a California business partnership. This will depend on what type of business entity you formed.
If you created a corporation, shareholders have voting rights proportional to their ownership stake. Partners in a limited liability company (LLC) can make management decisions based on the operating agreement.
In a general partnership, all partners share equal management rights and duties. Partners have a fiduciary obligation to act in the best interest of the business partnership.
Unless your partnership agreement states otherwise, partners normally must agree on major decisions like:
- Adding or removing partners
- Changing ownership percentages
- Making large purchases
- Taking on debt
- Expanding into new markets
- Mergers and acquisitions
- Selling part or all of the business
In a 50/50 partnership, partners may want unanimous consent on all key business decisions. Spell this out clearly in your written partnership agreement.
What If Your Partner Is Making Decisions Without You?
When a partner starts making important decisions without you, it likely constitutes a breach of your partnership agreement. Some common unilateral moves by a partner trying to force their hand include:
- Locking you out of company accounts or records
- Refusing to share profits
- Shutting you out of management decisions
- Attempting to dissolve the partnership
- Trying to force you to sell your ownership stake
These actions may harm the business and your interests as a partner. Don’t delay taking legal action if your partner tries any of the above. A business lawyer can help stop the behavior and negotiate a resolution.
Should You Seek Legal Help for Partnership Disputes?
In most cases, yes – it’s wise to contact a business attorney early on if you suspect your partner is breaching your partnership agreement. An experienced lawyer can provide specific guidance for your situation.
Some good reasons to seek legal help immediately include if your partner:
- Makes threats to dissolve the partnership or force you out
- Tries to change ownership percentages significantly
- Stops distributions or cuts you off from company accounts/records
- Makes large purchases or business deals without your consent
- Tries to remove you from management decisions
A business litigation lawyer can send a cease and desist letter informing your partner their actions violate the partnership agreement. The attorney can also file for injunctive relief while negotiating a settlement to stop the problematic behavior. Don’t wait until further damage is done to your business.
How Should Partners Split Business Profits and Losses?
One of the most important decisions business partners must agree on is how to divide profits and losses. This should be clearly spelled out in your partnership agreement.
There are several common ways partners share profits and losses, including:
- Splitting profits and losses equally – This 50/50 split is common in many general partnerships.
- Splitting based on ownership percentage – Partners may divide profits and losses proportionate to their ownership stake in the business.
- Splitting profits, but not losses – Some agreements only split profits evenly, while losses are shared based on ownership.
- Rewarding efforts or investment – Partners contributing more capital or sweat equity may take a larger share.
- Different classes of partners – In large partnerships, partners often get different profit shares based on their roles.
- Performance-based distributions – Partners getting better results may earn larger rewards.
Whatever formula you choose, the details should be agreed upon upfront in your partnership agreement to avoid future conflicts over profit and loss distribution. Discussing expectations for compensation early is key.
What Actions Can You Take If Your Business Partner Push You Out?
Having a business partner try to force you out can be stressful and damaging to the company. If your partner is pushing to dissolve the business, sell your ownership stake against your wishes, or remove you from operations, you have options.
Some potential actions if your partner tries pushing you out include:
- Review the partnership agreement and understand your rights. Look for clauses about forcing a partner to exit.
- Seek legal counsel immediately from an experienced business law attorney. They can send a cease and desist letter.
- Request mediation so you and your partner can discuss the issues with a neutral third party. Aim for a compromise.
- Ask the court for an injunction if the behavior is harming the business. This can temporarily stop your partner’s actions.
- Negotiate a buyout if you want to leave the company instead of continuing to battle your partner.
- File for dissolution if irreconcilable differences exist after attempting other dispute resolution tactics first.
- Sue your partner for breach of fiduciary duty if their actions go against the company’s best interests.
No partner should have to endure bullying or being forced out against their will. Seek legal remedies as needed if your partner tries to dissolve the business or push you out unfairly.
How a Business Lawyer Can Help
There are several effective ways a skilled California business attorney can help protect your interests in a partnership conflict:
- Reviewing the partnership agreement – The lawyer will examine your existing partnership agreement to determine which rights are being violated. This provides the legal basis for action.
- Sending demand letters – Your attorney can send an official letter informing your partner their unilateral actions breach the partnership agreement and must stop. This often prompts a resolution.
- Negotiating on your behalf – Your lawyer can negotiate directly with your partner to reach an amicable compromise. This may repair the business relationship.
- Filing lawsuits for injunctive relief – If your partner doesn’t stop destructive behavior, your attorney can file for a court injunction to halt specific actions violating the partnership agreement.
- Requesting mediation – The lawyer may suggest mediation to work towards a win-win solution and avoid the cost of litigation. Most partnership agreements have mediation clauses.
- Going to court – If all else fails, your attorney can take the partnership dispute to court and litigate on your behalf. The court can order resolutions like dissolving the partnership, forcing a buyout, and awarding damages.
Don’t let your business partner bully you or make critical moves without your consent. A seasoned California business lawyer can serve as your advocate and defend your rights and interests as a partner. Contact the attorneys at Tong Law in Oakland today.
