What are my Partnership Rights in case of Dissolution of Business?

Starting a business on your own can be a daunting task, and therefore, people usually look for partners. With two or three people working on the same idea, it becomes easier to achieve the goal without losing efficiency. There have been many cases where a partnership-based NY business formation has turned out to be a multi-millionaire venture, and you can be a part of such a successful partnership business too. 

All these beneficial aspects of a partnership business might make the idea of starting a company with a partner like a fairy-tale. Still, with more people, you have to deal with arguments, conflicts, and sometimes lead to a business break-up. 

A break-up in a business partnership can be stressful, and it can also be as emotionally draining. But instead of whining over the break-up, you should always be aware of where you stand after a break-up in a business partnership, as it helps you avoid being misled by anyone else. 

The agreement 

It doesn’t matter which type of grip you have with your business partners. The first thing to consider is what is mentioned in the agreement you both signed and approved? So, begin by checking whether you have a deal with your partner and what the different clauses of the agreement say about the current problem you are facing. 

If your partnership business is being run as a corporation, then all you need is to check the shareholder agreement. Still, if your partnership business is a limited liability company, you must check the operating agreement. 

But there are many situations where the partners don’t have anything in writing regarding the partnership business, which mostly happens in small businesses. In such a situation, you have to refer to the default rules of New York law, specific to the type of entity you are running. 

For example, suppose you are running a limited liability company. In that case, you have to refer to the default rules of New York Limited Liability Company Law, but if it is a type of corporation, then you have to refer to New York Business Corporation Law. You can refer to these laws even if there is nothing mentioned in the agreement regarding your issue. 

If you are dealing with a situation where you want to leave all this behind you or like your partners to buy you out and let you go, then the default rules will govern your relationship. This is why it’s important to remember that your specific agreement may have a completely different provision or provisions. 

But being a member of the LLC and being a shareholder of the corporation, it is almost impossible to make your business partners succumb to buy you out and let you go. Unless the agreement signed by all the members offers a solution for buy-out or withdrawal, you will continue to remain a shareholder or a member until the firm completely dissolves or until your partners agree on your terms to buy you out. Keep this critical aspect in mind during NY business formation

Forced business partnership break-up 

There are specifically mentioned circumstances under which you can take your malfunctioning business partners to court, ask the court to dissolve the NY business formation completely, and equally distribute the assets among the partners. But this will depend on many different aspects, including whether you are a shareholder in the corporation or just a member of the limited liability company. 

Forced dissolution of a corporation 

You can file a case to dissolve the business if you have 50% or more shares in the corporation. But even with 50% shares, you have to show at least one of the below-mentioned facts in the court;

  • The entire management of the firm is deadlocked 
  • Management is responsible for fraudulent, illegal, or oppressive actions against you

Even if you have only a 20% share in the corporation, you can still file a petition in the court under the second circumstance, but you have to come up with proper evidence. Well, the bad news is; in such cases, the judge may not move forward with the decision of dissolution, thinking it’s too harsh as a remedy, and there are many other options to deal with the current situation. 

Buy out election 

If you are planning to sue your business partners for oppression, you are in for a surprise as your business partners can legally force you to agree on the buy-out of your stakes in the firm. According to the current business corporation law, your business partners can always buy you out for an expected value of your shares owned in the company. 

Dealing with a business partnership break-up might be stressful, but instead of losing your cool and taking the wrong decision, you should comply with the rule and refer to the agreement to develop the best solution. If you wish to know more about it, talk to experts at Windsor Corporate Services today!

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