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At Sierra Crest Business Law Group, we guide small business owners over rocky legal terrain so they can protect and grow their companies.

What I want to talk about today are some questions we get from business owners who have partners. These are business owners who think they may have a problem with their partnership and even a business owner who wants to know if they can fire their partner. They want to know if and how they can break up with their partner if they can expel their partner from the business or buy their partner out. And so I’d like to talk about what I would do and what I recommend to my clients that they do about that kind of situation.

Step One: Be Proactive In Partner Disputes

I recommend a decision to act now instead of later. One thing all business partnership problems have in common is that they don’t age well. They go from relatively OK to fairly bad to worse and sometimes in a hurry! What you need to understand as a business owner is that the sooner you take charge and control of the situation, the more leverage you’re going to have. The more options you’re going to have, and the less expensive those options will be. Even when it comes to legal options, sooner is always better. So decide to act now instead of later.

Step Two: Assess The Business Situation Properly

Partnership problems come in some reasonably standard flavors.

  • A Partner Is Taking From The Business
  • A Partner Is Self-Dealing With The Business
  • A Partner Is Funneling Deals To A Side Business
  • A Partner Is Not Carrying Their Weight
  • A Partner Is Squeezing The Other Partner Out
  • A Partnership Deadlock Is Harming The Company

A Partner Is Stealing From The Business

If a business partner is taking assets from the company without the other partner’s knowledge, it will cause issues. Company assets include clients, customers, money, equipment, and business supplies.

A Partner Is Self-Dealing With The Business

Self-dealing is a legal term. It describes a situation where your partner is doing business with your company for his or her own benefit. This can happen through another company they own. Basically, instead of having your partner on one side of the table and your business on the other side of the table, your partner is on the same side of the table working out deals. These type of decisions disadvantage the company.

A Partner Is Funneling Deals To A Side Business

Another type of business partner problem is where your partner is taking business opportunities that belong to your business and funneling them to some side business. This action is another form of stealing unless you’ve agreed that it’s OK.

A Partner Is Not Carrying Their Weight

An additional type of business partner problem that we see sometimes is where one of the partners perceives that the other partner is not carrying his or her weight. The underserving partner may not be giving an equal amount of time and attention to the business or just not doing their job very well.

A Partner Is Squeezing The Other Partner Out

Another type of problem that we see in businesses from time to time is where one of the partners is trying to squeeze the other partner out of business. Sometimes that’s also referred to as a freeze-out. Some hallmarks of a squeeze-out or freeze out are when one partner is controlling the company and limits access to information about the companies financial status or transactions that the company is dealing in. The freezing out partner may also be avoiding a meeting of shareholders or a meeting of the members to keep you from being able to exercise your rights in the partnership. Relatedly, a controlling partner might cut or reduce your compensation in a way that is not evenly felt among all the partners or among, or by you personally. So those are some things to look out for that they may be part of a more significant effort at a freeze-out or a squeeze-out.

A Partnership Deadlock Is Harming The Company

Then the last kind of partnership problem that we see involves a deadlock. A deadlock is when two partners have serious disagreements that prevent them from making decisions to move the business forward. A standstill in that circumstance can inflict a lot of harm to the company.

Step Three: Consult With A Competent Nevada Business Attorney

Once you have assessed the problem in a partnership, I recommend you consult with a professional business law attorney. Maybe the problem is a lack of relevant information. That’s the time when you need to seek out the advice and assistance from somebody else who’s knowledgeable, such as an experienced Reno business attorney. There are a lot of things that a business attorney can do for you and with you. The business attorney can bring an outside perspective and an informed perspective on your situation.

A business attorney can help see things in an unbiased way, assisting the business owner in seeing things more clearly. Business owners can have a hard time seeing the relevant issues because they are busy working on the company. So the importance of perspective is very high in situations like this.

Another thing a Reno small business lawyer can do is help an owner understand their agreements. The agreements are going to be a mix of the things that you’ve written down with your partner, perhaps in a partnership agreement or operating agreement or shareholder agreement. Plus there are background legal principles. Those legal principles can play an essential part in knowing what your rights and responsibilities are. A business attorney can help you understand potential solutions. These solutions will come in several categories.

One would be a potential negotiated solution that you might achieve with your partner.

Another would be a solution that you could achieve through your voting rights and your rights in the company without necessarily even needing to negotiate. The last category of potential solutions would fall under the category of legal action or the threat of legal action.

Legal action is a serious step that you want to be talking with an attorney about to know what is available and what that would look like in your life and your business.

Now recall, we talked about an approach to dealing with business problems, and we began by deciding to act now. The second step is to assess what the condition and problem is in your business. The third approach would be consulting with an experienced business attorney.

The last thing that I would do as part of this process is executing the game plan. And just like you decided to act earlier, you need to decide to move forward. The sooner you take control of the situation, the more power you’re going to have, and the less expensive it’s going to be. The more options you’re going to have, the more potential good outcomes that you’ll have. The longer you wait, the more those things get constricted, sometimes without you even knowing. If you have specific questions about your business and your business partner, make a decision for yourself and for your business to come to talk to us about those questions. We can have a meaningful discussion about what solutions are available to you.