Shareholder, Corporate, Partnership Disputes
We regularly represent business owners in corporate disputes with their partners and other owners. Shareholders of corporations, members of LLCs, and owners of partnerships regularly have disagreements. Like some marriages, sometimes business partnerships fail. We help resolve these disputes when we can and, when we cannot, we regularly litigate business disputes in court.
Owners of a closely held company often have a fiduciary relationship, particularly when they are an officer employee. Unlike a regular employee, fiduciary employees are held to a much higher standard. Partners often dispute how profits and losses are being shared, accounted, allocated, and distributed. Sometimes one partners will use company assets for personal use or divert company customers to a different company.
Sometimes business disputes exist in a family-run businesses. Some date back generations. There are many advantages to working with family members-similar values, mutual trust, and long standing loyalty. However, when members of a family business have conflict, it can be very stressful-sometimes worse than a nasty divorce. Disputes in family-owned businesses can–and often do–destroy the company. The internal strife among family members can be far more damaging than a company’s most fierce competitors.
To avoid having your family broken up and to avoid destroying your business, keep these pointers in mind:
- Are You On The Same Page? Do you have the same work philosophy as your relatives? Some family members like to work less and avoid growth. Others want to work long hours and grow. Inevitable resentment arises when one relative thinks the other is slowing down the business-while the other relative thinks the rapid changes are like driving 90 miles per hour off of a cliff.
- Who Gets The Biggest Piece Of The Pie? Every family business dispute I have litigated has involved monetary disputes. If you are working harder and bringing in more business, should you get more money? That is how many non-family businesses operate to encourage hard work; but family businesses often split profit equally. In some cases, sharing money equally (or unequally) can be a recipe for resentment and irrevocable disputes.
- The Family Role May Not Be The Same As The Business Role. Just because mom and dad were in charge when you were growing up does not necessarily mean they are in charge of the business now. When parents relinquish ownership in a company, they typically also give up control. While a respected parent (or other family member) can often be useful in helping to resolve/mediate disputes, this person must realize that the law does not necessarily give them the right to call the shots-like they did when the kids were younger.
- Mediation. When disputes do arise, it is important for family members to communicate. Serious disputes often warrant outside help by a mediator who is someone that helps the family members discuss, manage, and resolve differences. Some family businesses will turn to a lawyer to help mediate a dispute; others turn to a respected family member. There are also other professionals (such as psychologists) who help family businesses resolve disputes.
- Contracts. Members of a family-run business need to enter into appropriate business contracts with each other. Unfortunately, many family businesses do the exact opposite by having no written agreements. Written partnership and other agreements are critical to address such issues as buy-out obligations, what happens when a family member dies or becomes incapacitated, how money is split, and who owns what.
Examples of cases we have litigated include:
- Represented partners and shareholders in disputes over how profits are being shared, accounted, allocated, and distributed.
- Represented businesses and owners when other owners are accused of using company assets for personal gain or embezzling/cooking the books.
- Went to trial in the Circuit Court of Cook County in a partnership dispute over a real estate company. Our client had provided a substantial sum of money towards what she thought would make her 50/50 partners in an Illinois LLC. Unfortunately, no written agreements were executed and the defendants took the position that the money was an investment that could be kept. The trial court dismissed our oral breach of contract claim in pre-trial proceedings so went to trial on an unjust enrichment theory. At trial, the judge ruled in our client’s favor, the defendants withdrew their appeal before the Illinois Appellate Court, and our client received 100% of the judgment that was awarded.
- Represented a minority shareholder being squeezed-out of a professional firm and asserted claims for breach of fiduciary duty resulting in a successful settlement.
- Defended a minority owner of several LLCs who was being deprived of information about his companies which led to a positive buy-out.
- Represented a business and one of its shareholders in a jury trial in Will County (Joliet), Illinois. At trial we argued that a former shareholder of the corporation had breached her fiduciary duties by, among other things, working with a property management company and a neighboring business to misappropriate corporate assets. The jury found in favor of our clients on all counts which went to the jury, including conversion, breach of fiduciary duty, and aiding and abetting the breach of fiduciary duty. Compensatory and punitive damages were assessed against all five defendants, including the neighboring businesses (and its owners individually), the property management company (and individually against a physician who acted on its behalf), and our client’s former business partner. (Will County, Joliet, Illinois)