March 1, 2021

Volume XI, Number 60

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March 01, 2021

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Avoid Business Divorce Litigation by Protecting Yourself up Front

Having a business partner whom you trust implicitly is a true gift. If you have such a relationship, count yourself among the lucky. Most business owners reading this blog, unfortunately, are having some sort of issue with their business partner(s), usually an acute conflict, often an existential one. However, many business owners who own less than 50% of the company are looking to avoid coming to my office (or anyone’s) to discuss potential business divorce litigation. Fortunately, there may be a way to do so, depending upon when you start, what action you take, and whether or not your business partner is the type who can be turned away from “the dark side.” Sometimes, though, a war is inevitable.

Avoid Business Divorce Litigation

For most business partners, if you liked each other enough to go into business together, chances are that whatever led to the downfall of the relationship was probably somehow avoidable by one or both of you. Truly inevitable conflicts are rare.

If you want to avoid becoming a plaintiff in a business divorce case, the first thing you need to do is avoid becoming a victim, which means avoid doing the things that someone else can take advantage of. Sometimes the best way of doing that is to make sure that your partner knows you are keeping a vigilant eye on things, and on him. Mostly on the money. If you are not working at the company, make sure you are receiving all relevant financial information, and not just at the end of the year. Monthly reports are often generated, and there is no reason you should not be privy to them. If you do work at the company, the more you demand to be involved in, the better. Asking to attend all high-level meetings with employees, vendors, customers, and professionals, and to be copied on critical emails, shows that you are interested, and hopefully shows that you are being vigilant. It also may tend to show that you cannot have the wool pulled over your eyes.

However, there are several critical caveats to this approach. For one thing, there is a fine line between being vigilant and becoming an unlikeable pain-in-the-you-know-what. If it makes no sense for you to attend customer meetings because your job has nothing whatsoever to do with sales, the request to attend them could be interpreted as you not trusting your partner and could backfire into a problem developing where none would have come to pass. Use your head and take steps that make sense for your particular case and your particular company.

But Don’t Become Like “Fred”

Fred came into my office complaining about his business partner running a competing company out of the very same office their company operated from. He never looked at the financials, so he never noticed that revenue was way down. He was happy with his salary, and the fact that it had not gone down was his barometer for measuring whether things were going well or poorly. In other words, since his salary had not gone down, things must be fine.

Fred suspected something was wrong when he saw invoices with another company’s name on it. But he waited two long years before he acted because he did not want to “hurt the company with a fight.” Of course, by this point, he had no choice and the fight could no longer be avoided. But if he had done things differently over the course of the business relationship, there is no way his business partner would have felt as comfortable as he did essentially rip Fred off.

It is never too early to take prophylactic measures to guard against being taken advantage of, and an attorney experienced in business divorce litigation should have just as many ideas about how to avoid litigation as he does how to win it.

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©2020 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume X, Number 204
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About this Author

David C. Roberts Member  New Jersey fraud, fraudulent transfers, trade secret, restrictive covenant litigation, employment litigation, environmental matters, and insurance coverage litigation.
Member

David C. Roberts, Co-Chair of the firm’s Litigation Practice Group, devotes his practice to handling complex commercial litigation matters, such as fraud, fraudulent transfers, trade secret, restrictive covenant litigation, employment litigation, environmental matters, and insurance coverage litigation.

His practice has a particular emphasis on partnership and shareholder disputes, including oppression and dissenter’s rights cases, with a focus on attempting to resolve matters through mediation, if such an approach fits within client’s goals and objectives.  In 2007, Dave launched...

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