Can My Business Partner Push Me Out: What You Need to Know
Can my business partner push me out? This is an important question to consider when entering into a business relationship with anyone for any period of time.3 min read
Can my business partner push me out? This is an important question to consider when entering into a business relationship with anyone for any period of time. Even when entering into a partnership with someone you know very well, you'll want to be sure you're prepared for any potential disagreements and major changes.
When a Business Partnership Turns Bad
Depending on the type of partnership, when a business relationship goes wrong, it can feel like a break-up, even down to the emotional difficulty. When marriages end, one of the biggest concerns is always if any children were involved and how they were handled. Consider the business your child when you enter into a business marriage with a partner.
If a partnership does go wrong, you'll want to make sure you know your rights with regard to ownership of the business in relation to its other owners.
Check the Agreements
The most important information regarding a business endeavor should be found in the company's documents. Operating agreements are used for most business structures, like LLCs (limited liability companies) and corporations. These documents should include the following information:
- Names and relevant information of partners, members, shareholders, or owners
- Profit distribution percentages
- Managerial duties
- List of company assets
- Provisions for owner disputes
- Provisions for adding new owners or transferring ownership and interest
- Detailed instructions for handling major company changes like the death of a member
If a business partnership starts to turn bad or a big dispute arises, check what your company's operating agreement says. Corporations have the same type of document in the form of a shareholder agreement.
Certain, smaller business structures might not use operating agreements, so they should refer to the rules and regulations laid out by their state. Every state has laws in place to help businesses govern themselves, but they vary from state to state and depending on the type of business.
If your company does have an operating agreement, but your specific issue isn't covered by the agreement, the state laws apply.
In some cases, shareholders or members of companies can ask their fellow business owners to buy them out and let them leave in peace. This practice isn't always allowed by the state or the company's governing documents. Buyout or withdrawal remedies should be clearly addressed when the business is first formed and the documents are written, but if not, the owners of a company are usually required to stick around until the company is dissolved or the other owners transfer ownership.
When a Business Break-Up Is Forced
If things have ended up in pretty bad shape, a business owner may be able to convince a judge to force their company to dissolve. Dissolution automatically frees business owners from their obligations — whether managerial, financial, or both. This isn't always a viable option, so it'll depend on the type of business and the situation it is in.
Certain circumstances are considered grounds for a forced dissolution. If a business owner can convince a court that the company is stuck in a hopeless deadlock situation over a major decision or that the business has committed some form of fraud, they have a good chance of getting the court to force a break-up.
In order to have much power in the eyes of the court, a business owner must hold at least half of the business. If the owner doesn't hold that many shares, they can try to get other owners to join them in their efforts. If they can get enough owners to represent at least half of the ownership interest, the group can petition the court.
In the event that a company has acted illegally, engaged in fraudulent activity, or acted oppressively toward one of its members, the member who takes the issue before the courts only needs to represent 20 percent of the company membership interest or shares. In this case, a court could decide that the dissolution of the business is unnecessary and suggest alternative solutions to the problem, like a buyout of the injured party.
Limited liability companies can usually only be dissolved by a member if that member can prove that the company is no longer able to conduct business in while still conforming to its operating agreement or articles of organization.
If you need help with understanding whether your business partner can push you out, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.