When disputes arise between you and your small business partner, you may begin to consider whether you should take litigation action against your business partner. Disputes are common in businesses when partners are investing significant time and resources into the company and inevitable challenges arise. Partners will naturally disagree about many things in the normal course of launching and growing a business. Small disagreements though, are much different from when a partner crosses a boundary engaging in illegal behavior.
It is important to remain calm and make sure you take the time to accurately assess the severity of the dispute with a partner before attempting to take any legal action. Before taking any drastic action, it is important to review the situation with an Arizona business litigation attorney and consider all available options to resolve the matter.
We’ve put together an article to help anyone understand how to assess a dispute with a partner and to help you understand your options moving forward.
Organize Key Agreements, Records & Evidence
All entrepreneurs and business owners should make a habit of keeping all of their key agreements and business records organized and readily available. Following this best practice will be even more important when dealing with a dispute amongst partners or if you wish to dissolve your business partnership at some point. You will want to start by making sure you have copies of any organizational documents, like filing papers for the entity, bylaws, and a founders or operating agreement.
It is a good practice to create an outline of your dispute and desired outcome to make sure your attorney has a clear understanding of the whole matter. By taking the time to really focus on the key aspects of the dispute and what you want to see in an outcome and putting in the effort to clearly write these details down, you can save on attorney fees and get the ball rolling sooner. This practice can also be helpful for addressing the dispute. Going through the details of the dispute, organizing key dates and events and summarizing what you want to happen can help clarify when things went wrong.
It can quickly become apparent where a misunderstanding originated and easier to propose some solutions that would be reasonable and fair for all partners. If you still believe in the business and the partnership, it is important to keep that in mind as you attempt to resolve that matter and can be productive to make sure your partners know that as well.
Verbal agreements may still be binding in Arizona if they are not directly addressed in the statute of frauds in A.R.S. 44-101, but they will likely add significant complications to the process of resolving a partnership dispute. Verbal agreements can often be the cause of significant disputes when partners start to disagree on what was previously discussed. This is the most important reason to work with an attorney to properly establish a new business in Arizona or review an existing business structure to see if additional agreements or documentation need to be put in place.
Review the Situation with a Business Litigation Attorney
Filing a lawsuit should not be taken lightly. If you are not already individually represented by an attorney, it is an essential step to find legal representation before you sue a business partner. This is the only way to make sure you correctly handle all the details required to settle the matter, whether in court or not.
Instead of attempting to go this route on your own, find an experienced business litigation attorney in Arizona that can schedule a consultation on your case. There are many partner disputes that can and should be resolved without taking the claim to court.
An experienced business litigation attorney will immediately provide perspective on the matter and likely can also offer some reasonable alternatives to pursue before filing a claim. For any business owner, it will always be important to have legal counsel that represents your personal interests. An attorney already representing your business entity will likely recommend all parties seek independent counsel if a partnership dispute arises.
Make a Demand for Access
If you do not have access to key things in the business, like the bank account, company books, executed agreements, email or even the physical location, then one of the first steps to pursuing litigation with business partners is to make a demand for access. Reviewing what you do have access to an attorney will help determine exactly what aspects of the business the demand for access will detail.
An official demand for access notice from a business litigation attorney will almost always result in your partner seeking legal counsel to respond to the demand. This will typically lead back to the governing documents for the company and exactly what access was agreed upon.
If rightful and agreed upon access has been revoked by one partner from another without cause, this is where the matter will likely require filing a claim in court. There are legal and justified reasons to remove access for a partner that has abandoned their duties or shown examples of negligence.
Either way, a court case will involve discovery and likely make those key documents available to all parties. This is why a demand for access focused on the key agreements and evidence from the dispute typically results in full access while the matter is resolved. This will provide your attorney with most or all of the details needed to assess whether filing a claim in court is necessary.
Options for Alternative Dispute Resolution
Many business partner disputes can be resolved at a far lower cost to all parties using alternative dispute resolution options. Mediation and arbitration can both be cost-effective and arrive at a similar outcome.
While it can be tempting to sue a business partner you believe to have wronged you or the company, it is important to keep an open mind towards other avenues to achieve a reasonable outcome. And while you might win the case if brought to court, the business will still likely suffer as a whole. Not to mention, litigation will definitely be time-consuming and expensive for all parties.
Working with an experienced business litigation attorney is the easiest way to assess when mediation or arbitration should be considered and pursued.
Pursue Court Intervention
Partnership disputes that reach a point of impasse where an amicable resolution or settlement cannot be reached often require court intervention. If there are serious concerns about actions from a partner putting the entire business in legal jeopardy, one of the first appropriate steps can be a request for a third-party to run the business until the case is resolved. This might not be ideal for a complex business, but it can be necessary to make sure the business still exists after the case.
Anyone that decides to file a claim in court to resolve a business partner dispute needs to understand that it is going to be an involved process from start to finish and how to prepare for litigation. There will be discovery and review of all the evidence by legal counsel for all parties. There will likely be depositions that require hours of testimony from all the key parties involved.
In most cases, you will need to prepare to testify in court and work with your legal counsel to make sure the legal strategy is serving your intended objectives. Once a trial starts, it will be hard for anyone involved to focus on anything else or accomplish any significant tasks until it is over. This is why is it essential to work with an experienced attorney and determine whether you should sue your business partner before actually doing so.
Find an Experienced Business Litigation Attorney in Arizona
The attorneys at M&G routinely represent business owners and entrepreneurs will all aspects of operating a business. Disputes among partners are a part of building a business and definitely should not always require court intervention to resolve the matter. Even contentious disagreements and disputes on partner conduct should be reviewed with an attorney to appropriately consider all possible approaches to resolution.
Our firm can represent individuals and companies with business partner disputes in Arizona and find cost-effective solutions. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online here.