When you launched your business venture with a trusted partner, you probably never expected that your undertaking would face a dispute that necessitated an ugly split. Unfortunately, such a business “divorce” in Texas can get messy.
When this happens, it’s important to have a plan for resolving partner disputes and to know when to bring in outside counsel to assist. Here are some practical tips for handling a business divorce.
What Is a Business Divorce in Texas?
A business divorce refers to the process of cutting professional ties with your business partners due to irreconcilable differences or other conflicts. You’ll need to refer to the specific terms of your partnership agreement to determine the best way to resolve your dispute. You should also consider whether you want to remain a shareholder or simply be free of your obligations under the partnership and are willing to entertain a buy-out.
The Weisblatt Law Firm has helped countless business clients navigate partnership disputes and protect their interests during business divorces. If you and your partners are facing irreconcilable differences, contact The Weisblatt Law Firm today to learn more about how we can help.
Common Causes of Partnership Disputes
Partnership disputes in Texas can arise for virtually any reason. However, irreconcilable differences are typically linked to one or more of the following issues:
Finances
Financial challenges can drive a wedge between business partners. Some types of financial disputes you might encounter are conflicts over profit distribution and disagreements over money management. Hopefully, your partnership agreement has safeguards in place to prevent one party from making unilateral financial decisions that will harm the business.
Management Conflicts
You and your business partners may also clash over certain management decisions. This is especially common when decision-making authority is vested unevenly among the parties.
Strategic Differences
Do you and your partners have different visions for the future of the business? In many cases, you can find a compromise to keep the company moving in a positive direction. However, some strategic differences can’t be overcome. If you and your business partners have drastically different ideas of where you want to take the company, it may be time to go your separate ways.
Breach of Fiduciary Duty
You and your business partners may be bound by a fiduciary duty to the business and one another. If one partner acts in their own self-interests — or, worse, makes decisions detrimental to the company — a business divorcee may be necessary.
No matter what circumstances led to your business divorce, The Weisblatt Law Firm can offer reliable guidance. Call us at (713) 666-1981 for a free phone consultation.
Tips for Resolving Partner Disputes in Texas
Develop a Comprehensive Agreement
Before joining or creating a partnership, make it a point to draft a comprehensive agreement that accomplishes the following objectives:
- Outlines each partner’s roles and responsibilities
- Sets expectations for each partner
- Defines the company’s management structure
- Delegates decision-making authority
- Addresses how conflicts will be resolved.
Your agreement should also touch on issues like capital distribution and how earnings and losses are shared. Make sure to include exit strategies, which outline the procedures to be followed if a partner decides to leave the business.
Try to look ahead and imagine potential conflicts that may arise in the future. Even if you think the likelihood of encountering a problem is remote, you should take steps to address it in your agreement.
Communicate Openly With Your Partner
Many disputes stem from miscommunication or a lack of transparency. If you’re concerned about the direction of your business or another matter, reach out to your partner(s) directly. Talk to them about your concerns and try to reach an equitable compromise.
You can often resolve disputes by being proactive and communicating frankly with the other shareholders. If you can’t work out the problem on your own, defer to the terms of the partnership agreement. Reminding the other parties of the terms they agreed to can prevent minor disputes from becoming major ones.
Work With a Mediator
A mediator is a neutral third party who can facilitate discussion between you and your business partners. The goal is to help you reach a mutually acceptable solution. They simply work to defuse tensions and get everyone oriented toward an amicable solution.
Mediation hearings are completely confidential. They’re less formal than litigation and tend to be more cost-effective as well. However, the mediator can’t enforce any decisions made or compel your partners to honor the terms of the agreement. If you reach an impasse, you’ll need to escalate the matter further.
Consider Arbitration
Arbitration is a more formal conflict-resolution strategy. An arbitrator can hear evidence and arguments from you and the other party and then make legally binding decisions.
Arbitration is still less time-consuming and cheaper than traditional litigation. Unfortunately, the other party may not agree to take part, especially if arbitration isn’t included in the terms of your partnership agreement.
Implement a Buy-Sell Agreement
A buy-sell agreement outlines the terms under which a partner can sell their interest in the business. If you have a buy-sell agreement in place, you may be able to purchase the shares of the party you’re having a dispute with. On the other hand, you may be able to sell your shares if you want to exit the business.
There are several types of buy-sell agreements and clauses, including “Russian Roulette” agreements and the aptly named “Texas Shootout” clause.
A Russian Roulette provision allows a shareholder to notify all other shareholders that they’re putting their shares up for sale. The notice includes the price of the shares and allows any of the eligible shareholders to buy out the member who issued the notice.
A Texas Shootout is similar in that shareholders can purchase the shares of other exiting partners. However, each shareholder who wants to perform a buyout will submit a sealed bid. Once all bids are in, they’re revealed. The highest bidder must buy out the other shares at the price they submitted.
A Texas Shootout is faster than the Russian Roulette method, but the anonymous bid process can drive up the price of the shares.
Talk to a Business Lawyer
If your agreement doesn’t include a buy-sell clause and the other party won’t agree to various buy-sell offers, you may need to consult a business dispute lawyer. A qualified business divorce attorney can help you protect your interests and pursue a legally enforceable resolution to the situation.
Your legal professional can provide guidance on Texas business laws and review the terms of your partnership agreement. They can also initiate litigation against the other party if you’re unable to resolve the dispute through less formal channels.
Ideally, you should speak with a business lawyer long before you encounter a dispute. An experienced attorney can assist in drafting your partnership agreement and ensure that it’s legally enforceable. However, if you’re already in the midst of a dispute, an attorney can help you reach a favorable outcome.
The Weisblatt Law Firm Can Help Guide Your Texas Business Divorce
If you’re facing the prospect of a Texas business divorce, The Weisblatt Law Firm can stand in your corner and guide the ensuing negotiations. We’ll explore amicable solutions or initiate litigation if the other party refuses to cooperate.
Contact us at (713) 666-1981 today for a free phone consultation with a trusted business attorney.
Attorney Andrew Weisblatt
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio
