Resolving Business Partner Disputes for Arizona Small Businesses

Business Partners Shaking Hands Attorney Office

Business partnership disputes can pop up for many reasons (such as those listed in the related posted “Litigating Business Partners Disputes”). However, not all partnership disputes need to result in litigation.

When seeking to avoid litigation in a business partnership dispute, the question is ultimately: how willing are the partners to have a reasonable discussion on what the best path is moving forward? Even if the partners can only agree on the fact that keeping the business running is in the best interest of the partners individually, that can be enough to move forward with resolution in an amicable way.

So, what are the steps to getting to a business partnership resolution without going to litigation?

1. Rebuilding Communication by Hiring the Right Legal Counsel

When small business partnerships are fractured, oftentimes it is not possible to have meaningful communication between the parties based on a lack of trust and understanding. Each party having their own legal counsel whose purpose is to try to rebuild communication between the parties before seeking options to litigate the dispute is a critical first step in figuring out if an amicable resolution is possible. This is always the first approach our firm takes. 

2. Designating Day-to-Day Operations 

The value of a business is largely dependent on the fact that it is up and running. It is also critical for a business to continue servicing its obligations in order to avoid further liability. In order to keep a business running during a partnership dispute, there must be someone who is running the day-to-day operations.

Sometimes (but rarely) the partners can agree on one of the partners continuing the day-to-day operations. Other times, the parties can agree to promote an existing employee to run the business or hire a third party—called a receiver—to run the business for a short time. What most business partners do not know is that there are actually companies that provide temporary receiver services for companies going through partnership disputes.

3. Full Transparency with Accounting and Assets/Liabilities 

With a person designated to run the day-to-day operations for a short period of time so that the business can continue to make money and prevent it from incurring liability, the next step is to ensure that there is full transparency with the accounting records and a list of assets/liabilities of the company. This is often a difficult step because the reason many business partnership disputes arise is because of how one or more partners were managing the money.

However, without transparency and exposure of the good and the bad that has taken place, there will not be an ability by the parties to decide how to best divide the company. 

4. Valuation

With the business continuing to operate and with full transparency of the assets/liabilities, it is time to conduct a valuation of the business. This can be done in a few different ways: (1) the value of the business as if it were being sold to a third-party, (2) the value of the business as if a partner was to buy out other disputing partners, and (3) the value of the business if it were to close down and liquidate its assets.

The first two valuations may require an expert business consultant to determine the value of a business. You can contact us for help finding the appropriate people to value your business.

5. Determine How Best to Structure a Deal

The final step is to determine how the parties will ultimately move forward. Sometimes, none of the partners have enough capital to buy the other disputing partners out. In those instances, the parties sometimes look for outside financing or structure an owner carryback type of deal. Occasionally, the partners can split the business in half with the disputing partners each taking an equal portion of the business (this is more realistic when the business has two or more divisions that can be separated out).

In other instances, the best result is for the partners to sell their business to a third party and simply split the assets so they can move forward in a different endeavor. In the rarest circumstances, the best option is to simply close the business down, sell the assets, pay off the liabilities, and then split any remaining proceeds. 

Contact Counxel Legal Firm

We regularly assist business owners through their partnership disputes and help them get to the best resolutions possible. Contact us at (480) 744-6621 or at request@counxel.com. Don’t forget to check out the good things that others are saying about the services they received from Timothy Coons on Google.

This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact request@counxel.com or (480) 744-6621 to request specific information for your situation.

*Conveniently located off the 101 Freeway and the US 60 in the middle of Phoenix, Scottsdale, Tempe, Chandler, Gilbert, Mesa, and Queen Creek!

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