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I Don’t Want To Sell To My Business Partner. I Want To Buy Him Out

You have decided that the problems you are having with your business partner are so bad that you have to file litigation against him.  As discussed in prior postings, the remedy in such a case is often a buy-out.  Either the court will order that you will buy out your business partner, or that he will buy you out.  (This is also often the remedy when minority shareholders sue for shareholder oppression, or when one 50/50 shareholder sues the other.)  When a new client hears that these are the potential outcomes, the inevitable question is – how can I make sure of one outcome over the other?

In other words, one business partner may want to be the purchaser, and another may want to be the seller, but very few have no preference at all.  More often than not, when business owners feud, the preference is to remain in control of the company and not be the one forced to sell.  In such a case, strategizing how to become the one who gets to keep the company becomes critical.

Certain things are fairly obvious.  For example, shareholder oppression cases in New Jersey are almost always decided by a judge rather than a jury.  Therefore, the more you position yourself as the “good guy” in front of the judge, the more likely the judge is to like you and see you as deserving of whatever relief you are seeking.  Maybe.  But there is much more to it than this.

What will influence the Court far more is whatever the court considers to be in the best interest of the company.  For a company with only two shareholders and no other employees, there are fewer considerations.  But for a company with several employees depending on the company for their livelihood, the court will often look to whichever owner is in the best position to keep the company in business and succeeding.

By the time you see a lawyer, it may be too late to change anything, and whatever has happened up to that point is already etched in stone.  For example, if you have allowed your business partner to make most of the decisions while you sat by passively, there is very little time to change this once litigation commences.  Therefore, seeing an attorney as early in the process as possible is key.

All too often, a new client comes to me stating that he has been having issues with his business partner for years, but that some recent action was the “last straw.”  By that point, it is too late to strategize and put yourself in the best position to try to obtain the result you seek in the eventual litigation.  The earlier you identify problems in your business relationship and seek legal counsel, the greater your ability to affect the outcome.  Such a strategy requires foresight, and may cause you to see a lawyer before you would prefer.  But it may be better than effectively rolling the dice to see which one of you winds up with the business that you both created.

In my next posting, I’ll examine how a minority shareholder (as opposed to a 50% shareholder) can position himself or herself to be the purchaser in a forced buy-out, rather than the one forced to sell.