Minority/Majority Business Conflicts

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BUSINESS CONFLICTS

Like disputes between spouses, relations between co-owners of privately held businesses deteriorate to the point where the co-owners can no longer work together, and they need a “divorce.” With all of the stresses of the modern world, and particularly due to the financial strain brought on by the pandemic, conflicts are inevitable in any business relationship. Business divorce may involve significant emotional tension as well, particularly if the co-owners cannot agree on how to terminate their business.

The attorneys at Melvin & Melvin have the experience and resources to protect our clients’ financial interests and help clients to navigate business conflicts in a manner which maximizes the client’s financial, business, and personal objectives. At Melvin & Melvin, we understand the value of relationships and communication and we work to meet the unique needs of every client.

While litigation may sometimes be avoided in business divorce matters, Melvin & Melvin’s team of seasoned litigators know when to move quickly and aggressively and when to step back and negotiate matters. When litigation becomes necessary, the attorneys at Melvin & Melvin work diligently to control the litigation process, working with accountants or other experts as may be needed to evaluate and analyze the financial aspects of the case. In working closely with a strong network of third-party experts, Melvin & Melvin is able to capitalize on outcomes best suited to our clients’ needs.

There are many reasons conflicts may arise among business partners which could include the following:

  • Management of the Company
  • Compensation
  • Breach of fiduciary duty
  • Breach of contract
  • Lack of transparency and miscommunication
  • Minority vs. majority shareholder rights

Options regarding the handling of a business divorce, short of litigation, may occur depending upon the language and provisions of the company’s operating agreement, by-laws or agreements between shareholders or members. These instruments may include procedures or alternatives for resolving disputes amongst the co-owners, including:

SALE OF THE BUSINESS:

If it is unlikely that the business will survive the conflict between co-owners, the best option may be to sell the company and/or its assets and divide the proceeds. Taking this step early, even prior to commencement of litigation, the co-owners remain in control of the sale of the company and/or its assets. Resorting to judicial dissolution will result in the sale being turned over to a court appointed receiver who will manage the business and sale process.

BUYOUT:

The company, other shareholders/members or a third party may be able to purchase and “buy out” the interests of the shareholders/members involved in the dispute. The organizing agreement or special shareholder/member agreement of a business will typically address the procedures by which a buy-out can occur and how the interest should be valued.

DISSOLUTION:

Dissolution of a company may be voluntary by agreement of all owners, or involuntary via judicial dissolution, in which the Court may order dissolution and division of the assets and debts of the business. The operating agreement may contain procedures for dissolving the company. However, if such procedures are absent from the operating agreement, New York’s Corporation Law and Limited Liability Company Law establishes default procedures for dissolution.

Because disputes among co-owners of businesses are common, and due in part to the expense of litigating a business divorce, Melvin & Melvin encourages mediation of such matters, if appropriate. Mediation, when used in the right circumstances, offers clients a more private, economical, and efficient way of resolving business conflicts.

When businesses break up or anticipate problems in the future, the attorneys at Melvin & Melvin are well suited and ready to provide their skills and expertise, inside and outside the courtroom, assessing and evaluating the best interests of our clients to formulates strategies best suited to those interests. Our goal is to guide our clients out of what may have been a destructive relationship and into a new and profitable next chapter of their business career.

We will continue to post articles of special interest to business owners facing the prospects of business divorce.