In Illinois, business partners can have disputes for various reasons, and dispute resolution methods can materially affect the partners’ business relationship. In some cases, the partners may want to preserve their status and continue with the business while other scenarios may warrant one or both partners exiting the venture. There are a number of different ways to resolve disputes in different business scenarios.
Preservation
When you have a viable business and want to preserve the relationship with a business partner, a third-party mediator can foster healthy communication and productive discussions. This cost-effective method can help redefine the firm’s goals, clarify tasks and bring partners to a mutually agreeable solution.
However, if a dispute results in one partner wanting to leave the company and the firm is viable, you can buy out their share of the business. If you do not have an existing buy-sell agreement for this situation, you must have the business appraised and seek qualified assistance to structure and complete the buyout.
Although a business is projected to have ongoing viability, in some cases, both partners may want to exit. In this situation, having the company valued and seeking buyers such as competitors, existing staff or prospects sourced through a business broker could make sense.
Freeze out minority owners
If a partnership dispute involves partners with unequal ownership stakes, majority partners can freeze out minority stakeholders by merging with a new company owned by the majority stakeholders. This move is called a freeze-out merger, and it can remove minority owners while giving them fair-market-value compensation for their ownership stake.
Dissolving the company
If business partners fail to resolve their dispute, the company may undergo a voluntary or judicial dissolution. In a voluntary dissolution, amicable partners can settle debts, liquidate assets and distribute any remaining funds based on their partnership stakes.
If the partners cannot reach a consensus, they may seek judicial intervention. In this case, the partners relinquish control over the business and abide by the court’s ruling regarding the company’s dissolution.
Bankruptcy
A formerly viable business may be in dire financial conditions, which can trigger partner disputes. The company may file Chapter 11 bankruptcy and restructure its debts to continue operating. However, the company’s financial circumstances may be so dismal that the partners must file Chapter 7 bankruptcy to fully liquidate the company, selling all its assets to pay creditors.
Litigation
Some disputes involve partner misconduct, such as embezzlement of funds, fraud and failure to perform required obligations and responsibilities among other issues. Through commercial litigation, partners can file a legal cause of action against the partner or partners causing the violations and seek an award of financial damages as compensation.
While partnership disputes are challenging, taking a structured approach to resolve them can pay off. Being informed can help find the resolution that best fits the needs of the partners and the business.