Most Common Shareholder Disputes in Small Business Partnerships and How to Anticipate Them.

Shareholder disputes are unfortunately not uncommon. Partners start with plenty of enthusiasm and ideas, but little of these ideas are placed in concrete sentences, in a binding piece of paper.

Let’s make this graphic but describing a situation we’ve faced with many clients through out the years. In a normal partnership, let’s say of two that are 50/50 in ownership, there is always one partner who is the more active, who has and will execute a set of ideas (in the form of a service or product), and the other who is less active but has other resources like capital, or hard assets that he/she can provide to the company.

Thus, Partner 1 and Partner 2 get it going, with the high initial energy that drives the inception of enterprises. But then, the going gets tough. Partner 1 and Partner 2, humans as they are, do not necessarily think that what they pitch in the partnership has a value equal to that that the other brings. The partner with the capital, who laid out most of the money to finance the enterprise, will feel that he should be a majority owner, because he has what in his view is the most valuable asset: dollars. Conversely, the partner that takes care of operations, logistics, and puts substantial amounts of work, sacrificing weekends or family time, will feel that what he/she does for the partnership is more crucial and vital than the cold hard cash.

Thus, resentment builds, and this resentment gets tested when there is time to take tough decisions for the company, like for example, how much of a salary should the working partner be paid? Should the capital partner be paid a salary at all, or should he wait for 2 or 3 years until the company is more liquid to see money return? Should the company acquire loans and be in debt? Should the business buy a company car? Questions as simple as the ones just presented can be the source of conflict between partners who already resent each other because they each feel that what they bring to the partnership is not adequately represented in their formal share or ownership of the company.

Believe it or nor, all (or most) of these eventualities can be avoided, anticipated, and placed in a comprehensive writing called operating or shareholder agreement. For that, you need a knowledgeable lawyer not only in business law, but in business itself. At Ayala, we have extensive experience in dealing with small businesses, and can help you in business transactions or litigation alike.

Call us at 305-570-2208 for a consultation or email attorney Eduardo A. Maura at eayala@ayalalawpa.com

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