May 26, 2022

StrategisChhr

Skillful Business Crafters

Business Divorce Tips for Minority Owners

Commencing business divorce litigation – filing a suit or at least exploring a suit against your business partner – is a huge step. Obviously, starting what can be analogized to a “war” cannot be undertaken lightly. But trust between business partners is critical. Misplaced trust is a recurring theme that minority shareholders, or even 50/50 shareholders, often come to regret.

Considerations to Commencing Business Divorce Litigation

One obstacle to considering such a legal maneuver is the fact that often, nothing new is really happening. You have simply grown tired of and can no longer accept certain business practices. For example, your partner taking vastly too much money in salary might be something you can accept for one year. Even if your partner is taking $50,000 too much, who wants to sue over that amount? But if this has been occurring for 10 years, that means he took $500,000 too much, an amount that clearly justifies legal fees. Now that you have waited 10 years though, you will have to explain to the Court why you waited so long.

More often than you can imagine, clients talk about how their partner conducts himself with others in business – vendors, contractors, employees, professionals – in a dishonest manner. Often, I ask a question that causes not only a blank stare, but pangs of regret for not acting sooner: if he was dishonest with all these other people, what makes you think he was honest with you? 

Looking at Your Business Partner with a New Lens

Looking at the entire business relationship through this new lens often helps minority owners see everything in a different light. Why did I ever agree to that? How could I let him get away with so much? Why didn’t I review the financials? Why didn’t I attend those meetings? How could I blindly trust him without verifying everything? Where did all the money really go?

All may not be lost, however. Failing to act is not necessarily fatal. If you have a reasonable explanation for not acting earlier, the judge may see it as such. Not resorting to litigation at the first sign of a problem can be presented as a virtue rather than a vice. The key is to position yourself so that delay is viewed as unwillingness to start a war, rather than consent to your partner’s behavior. Every case is fact-specific and must be assessed individually. Please consult with a business divorce attorney who can help you not only to uncover the facts, but also to explain them in a way that puts you in the favorable light you deserve.


©2022 Norris McLaughlin P.A., All Rights Reserved
National Law Review, Volume XII, Number 28

https://www.natlawreview.com/article/dealing-delays-realizing-your-business-partner-oppressing-you