Disputes with minority business partners can go in two directions. Either the majority partners want to remove a minority partner, or a minority partner wants to hold a majority partner accountable for some form of wrongdoing. Formation documents executed at the time of business formation should outline the process for terminating a business partner. However, the terms might be unclear, or the partners could interpret them in different ways. Sometimes, no formal partnership or operating agreement exists. In such a case, the laws of the Indiana Uniform Partnership Act would apply to the situation. Typically, someone involved in any business partnership dispute will seek guidance from a business lawyer in Indiana.
Reasons Why Majority Partners May Want to Force Out Minority Partners
Majority partners usually want to remove a minority partner out of a desire to consolidate ownership into fewer hands. Private, closely held companies are more prone to this situation than large companies with numerous partners or shareholders.
Personality clashes with a minority partner could contribute to the decision to remove a minority partner. In some situations, minority partners also work as employees of the company, and the majority partners might dislike how that person is performing in that role. Although majority partners would generally have the authority to terminate that person’s job, they may wish to sever ties entirely and force the person out of an ownership position.
Methods Used to Oppress Minority Shareholders
Majority partners who want a minority partner to leave may take actions that encourage the person to leave. Their control of the company gives them many levers to pull that might motivate the minority partner to withdraw. Many of these “oppressive” actions could amount to an abuse of power but are not necessarily illegal unless they breach fiduciary duties.
Actions that isolate minority partners or leave them uncompensated include:
Removal from board or management
Misappropriation of company money for personal use
Cessation of dividends or distributions even when profitable
Collection of excessive compensation by majority partners
Establishment of favorable contracts with other businesses held by a majority partner
Refusal to share the company’s financial records
Dilution of minority partner’s ownership share
Actions meant to force out a minority business partner could explain the minority partner to take legal action. A consultation with a business lawyer in Indiana could reveal strategies to reduce the risk of internal confrontations or a potential lawsuit.
How to Remove a Minority Business Partner
When a minority partner does not leave even when asked, majority partners have a couple of ways to get the outcome that they want. No matter how you achieve this goal, you will need to buy out the partner’s equity in the business to complete the removal.
First and foremost, the partners should follow the terms of their partnership or operating agreement if it spells out how to remove a partner. The document is meant to prevent prolonged conflicts and litigation.
In the absence of a partnership agreement, then litigation will likely be necessary to resolve the dispute. Because that is a time-consuming and costly option, it is the least desirable method for resolving partnership disputes in Indiana.
Dissolution of the partnership could present the workaround that you need to end the matter. Majority partners may sell off their equity and effectively leave the minority partner behind.
Ways that Minority Business Partners Can Assert Their Rights
Prior to working with an Indiana lawyer to sue majority partners, a minority partner could demand to see company records or call a shareholder meeting to address the problems. A demand to inspect records requires a formal request. A business lawyer in Indiana could help you write a comprehensive letter that outlines everything you have a right to see.
As a minority partner, you can file a shareholder motion that forces the company leadership to meet. At such a meeting, you could propose solutions to the dispute. A vote in your favor could restore your satisfaction with the business relationship.
This meeting provides an opportunity to outline your grievances that could form legal arguments in a lawsuit should you decide to litigate the matter. You may have evidence that the majority partners failed to fulfill fiduciary duties to promote the company’s best interests when they took actions to force you out.
Legal arguments against majority partners usually involve violations of the:
Duty to care
Duty of good faith
Duty of loyalty
Legal Guidance During a Business Dispute
Partnership disputes in Indiana are typically complex matters, and you may have to consult a business lawyer in Indiana to determine your best course of action. At Webster & Garino LLC, we can clarify partnership agreements and draft letters to other partners outlining your complaints or proposals. Whether you want to remove a partner or defend an ownership opinion, we can research strategies for pursuing your goals and limiting liability. For a complimentary initial consultation, call our office at 317-565-1818.
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