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Jul 22, 2022

Can You Force a Business Partner Out?

Business relationships can be complicated and change over time. While there are many instances of.

Can You Force a Business Partner Out?

Business relationships can be complicated and change over time. While there are many instances of business partners willingly exiting a company, there are also times when it may be necessary to force a business partner out for the good of the business. If you find yourself in this situation, you need an experienced and skilled business law attorney by your side advising you on your legal options. To learn more about how the highly qualified attorneys at Singular Law can help, call or contact our office today to schedule a consultation.

Review the Operating Agreement

The first step in determining whether or how to push out a business partner from a venture is to review the operating agreement. At the establishment of a new business, the business founders must create an operating, or business, agreement. This document contains many of the most important aspects of the company, such as management of the business, distribution of profits, how to resolve disputes, and procedures for when a partner wishes to exit the business. In most cases, the business operating agreement will provide information on how a business partner can go about exiting willingly or how they can be pushed out by other owners of the company.

Buyout Provision

One of the most common ways to push out a business partner is through a buyout provision. A buyout provision allows other owners of the company to buy out the ownership stake of someone if they wish to leave. The underlying purpose of this is to allow current owners to maintain control of their company without someone new coming in. In some cases, buyout provisions also provide specific circumstances when business owners can buy out another owner even if they are unwilling to sell their stake in the company.

Violation of Business Agreement Provisions

Another way to push out a business owner is if they violate other aspects of the business agreement. Common examples include commingling personal and business funds or using their stake in the business as collateral for debts if it is prohibited by the agreement. Violations of state or federal law may also constitute a reason for pushing out a business owner from the company, or they may be pushed out if they commit immoral or unethical acts that violate the business agreement.

Lack of Written Agreement

For some smaller businesses, there may not be an official written business agreement between owners. If this is the case, then a business owner who wishes to push out another may need to look to state law for how to legally engage in this procedure. Typically, state contract law does provide remedies and rules for how this can be done according to the law, even when the business owner being pushed out is not going willingly.

Utilizing the Courts

One final option is to utilize the courts to force out a business partner. This is usually done as a last resort, as the outcome could be the dissolution of the company. The court can order that a business break up or dissolve, but the owner or owners bringing the petition to the court usually must own at least fifty percent of the company. Multiple owners can band together to reach this threshold if they agree on pushing out another owner. The petitioner(s) must be able to prove that the owner they wish to push out is either engaging in illegal activity or that the management of the business is utterly deadlocked. The judge in the case may order that the business owner accused be bought out of their position, or they may order the complete dissolution of the company. The business entity involved may also play a role in the decision, as business types like a limited liability company may only be allowed to dissolve under specific circumstances. To learn more about your options for forcing out a business partner, talk to our office today. 

Call or Contact Singular Law 

Making the decision to push out a business partner is not often an easy one, and it is critical that once the choice is made it is done properly according to the business agreement as well as the law. If you have questions about how to push out a business partner from your company, the experienced and knowledgeable business law attorneys at Singular Law are here to help. Call the office or contact us today to schedule a consultation and learn more about your legal options.

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