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Understanding the legal options in an internal business dispute

New Jersey businesses may be interested in some options in situations where a partner is not performing as expected. These options may be built into the corporation or may require the assistance of a court.

A non-performing partner can be a huge detriment to a business, particularly when it stalls the decision-making process. There are a few ways to resolve these issues that can be built into the business itself, however. While partnership-based businesses generally share control among the partners, a corporation divides control according to shares. Therefore, a majority vote can help to outweigh the non-performing partner’s position. When there are only two equal votes, though, a deadlock can occur.

Sometimes negotiations between the partners may be enough to solve the business dispute. In other cases, the partners may not be able to resolve the issues themselves. In these situations, dispute resolution procedures can be built into the corporation bylaws. The bylaws can mandate mediation, which brings in a neutral third party to help the two business partners come to an agreement. Additionally, the bylaws can allow for a buyout of the non-performing partner in cases where there is no resolving the dispute. When these provisions do not exist, however, it may be necessary to use the legal system. Bringing the partner to court can lead to the dissolution of the corporation or a forced buyout of their shares as a resolution to the issue.

An attorney may be able to help craft the corporation’s creation documents in order to minimize the impact of business disputes on the company. In cases where the dispute cannot be resolved amicably, the attorney may also be able to represent the corporation or one of its members in business litigation against the nonperforming partner.

Source: Houston Chronicle, “How to Deal With a Non-Performing Business Partner“, Terry Masters, December 12, 2014

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