Resolving Partnership Disputes When Partners Have Equal Voting Rights
When partners have equal voting rights, a contentious dispute can lead to an impasse with no clear path forward. In this scenario, the partners will need to review the relevant terms of their partnership agreement to determine their next steps. While partners with equal voting rights will often need to pursue alternative dispute resolution (ADR), there are also other possibilities—including pursuing a buyout or dissolution when necessary.
Partnership disputes can present a variety of legal, financial, and practical challenges. While this is true in all circumstances, it can be especially true when partners have equal voting rights. If neither partner (or group of partners) has the ability to make a binding decision on the partnership’s behalf, the partners may have no choice other than to pursue a formal legal resolution. In this scenario, it will generally be necessary to engage an experienced Miami partnership dispute attorney who can review the partnership agreement and provide advice regarding the options that are available.
5 Potential Options for Resolving Partnership Deadlocks
The options that are available in any particular case will depend on the specific circumstances involved. This includes, but is by no means limited to, the nature of the issue underlying the partners’ dispute and the terms of their partnership agreement. With this in mind, if none of the partners can force a path forward, the options for resolving a deadlock may include:
1. Informal Negotiations
Even in highly contentious scenarios, informal negotiations are often the first step. Each partner involved in the dispute should engage legal counsel, as each partner will need an independent attorney who can provide complete, unfiltered, and unbiased advice.
Oftentimes, even taking a slightly more structured approach to negotiating a resolution can prove to be enough. Whether the partners share a mutual interest in moving past the conflict or they are ready to part ways, they will generally share a common interest in avoiding unnecessary costs and delays. That said, negotiating won’t prove fruitful in all cases—and when it doesn’t, the partners will need to move to the next stage in the process.
2. Alternative Dispute Resolution (ADR)
In many cases, the next stage in the process will be to pursue alternative dispute resolution (ADR). Partnership agreements typically include mandatory ADR clauses that require mediation or arbitration (or both) in the event of a deadlock. Mediation is a form of guided negotiation that involves working with a neutral third-party mediator, while arbitration is more akin to a slimmed-down version of litigation that ends with a binding decision from an arbitrator or arbitration panel.
When pursuing mediation, the parties are required to participate in the process in good faith. However, neither party is required to agree to a mediated settlement. If partners pursue mediation and it becomes clear that the process is not going to be successful, they can terminate the process and initiate arbitration or litigation depending on what their partnership agreement requires.
3. A Buyout and Severance of the Partnership
If deadlocked partners cannot find a mutually agreeable path forward, they may need to focus on negotiating a buyout instead. Here too, examining the relevant terms of the partnership agreement will be the first step. In the absence of clear contractual guidance, the partners will generally be free to negotiate as they see fit—though both sides will need to come to the table in good faith if they are going to achieve a resolution that avoids the need for arbitration or litigation.
4. Sale or Dissolution of the Partnership
If neither partner is able or willing to buy out the other, then the partners may be looking at either selling the business in its entirety or dissolving their partnership and winding up its affairs. If selling is a viable option, this will most likely be the best approach—though, here too, the partners will ultimately need to find a way to come to terms. If selling is not a viable option, then dissolving the partnership will necessarily be on the table, though this should generally be a last resort.
5. Partnership Litigation
If the partners are completely at odds with no hope of reconciling or agreeing to a buyout, sale or dissolution, then they may ultimately be looking at litigation (unless their partnership agreement requires arbitration instead). In litigation, each partner will be able to pursue his or her desired outcome to the fullest extent possible under the law. When pursuing litigation, settling remains on the table; and, as the partners’ trial date nears, one or both partners may find that they have sufficient incentive to reopen negotiations.
FAQs: Resolving Partnership Deadlocks in South Florida
What are our options if my partner and I have equal voting rights?
If you and your partner are deadlocked and you have equal voting rights, your options depend on the terms of your partnership agreement. In most cases, if you and your partner cannot negotiate a resolution, you will need to pursue either mediation or arbitration.
Can one partner force a buyout or sale?
Whether one partner can force a buyout or sale depends on the terms of the partnership agreement. If you are interested in pursuing a buyout or sale, you will want to discuss your situation with an experienced Miami partnership dispute attorney.
Are mandatory ADR clauses in partnership agreements enforceable?
Yes, mandatory alternative dispute resolution (ADR) clauses in partnership agreements are generally enforceable. As a result, if you are facing a dispute with a partner who has equal voting rights, you will most likely need to pursue ADR—provided that the dispute is covered under your partnership agreement’s mandatory ADR clause.
Schedule a Confidential Consultation with a Miami Partnership Dispute Attorney at Edelboim Lieberman
If you need to know more about your options for addressing a partnership deadlock in South Florida, we invite you to get in touch. To schedule a confidential consultation with a Miami partnership dispute attorney at Edelboim Lieberman, please call 305-768-9909 or get in touch online today.
