A partner buyout can provide a practical way for a business owner to exit a partnership while allowing the remaining partners to continue operating the company. However, when disagreements arise over the terms, valuation, or execution of a buyout, they can quickly evolve into contentious business disputes. In cases where the parties cannot resolve those disagreements between themselves, litigation may become necessary to protect a partner’s financial and legal interests.
What is a Partner Buyout?
A partner buyout occurs when one business partner purchases another’s ownership interest in the company. The transaction may be voluntary, such as when a partner wants to retire or pursue another opportunity. In other cases, a buyout might be triggered by circumstances addressed in the partnership agreement or another governing document.
The agreement governing the business will typically establish procedures for a partner’s departure, including how their interest will be valued, the method by which the purchase price will be calculated, and when payment must be made. But when these provisions are unclear, or the parties disagree about how they should be applied, judicial intervention may be required to resolve the dispute.
Common Partner Buyout Disputes That Lead to Litigation
A disagreement in connection with a partner buyout doesn’t always require litigation. However, resolving a dispute in court may be necessary when the parties cannot settle the matter through negotiations or by using alternative dispute resolution. Critically, there are several common sources of buyout disputes that often lead to litigation, including:
- Disagreements over valuation: When partners disagree over the value of the departing partner’s ownership interest, they may not be able to agree on an appropriate purchase price. These types of disagreements are especially common in cases where the business has complex assets, fluctuating revenue, or significant intangible value.
- Disputes regarding the buyout agreement: A party may contend that the terms of the buyout agreement were not followed, the language in the contract is ambiguous, or another partner breached the agreement.
- Failure to make required payments: Litigation may arise if the purchasing partner disputes the amount owed under the buyout agreement or fails to make the required payments.
- Allegations of misconduct: Allegations that the remaining partners diverted business opportunities, concealed financial information, or committed other misconduct that could affect the value of the departing partner’s interest may require litigation to determine the extent of any wrongdoing and the departing partner’s resulting rights or damages.
The specific circumstances surrounding the buyout will determine the nature of any resulting claims. Notably, identifying the source of the dispute and preserving financial and business records can be critical to protecting a partner’s position and financial interests.
Issues That Give Rise to Litigation After a Buyout Has Been Completed
Litigation may also be necessary sometimes after a partner buyout has been completed. For instance, a partner may discover that financial information was withheld before the transaction took place or the remaining partners refuse to make the payment installments required under the buyout agreement. In these circumstances, the underlying dispute may involve claims for breach of contract, breach of fiduciary duty, and other business-related causes of action.
Because business partner buyouts can involve significant financial interests and complex contractual obligations, obtaining legal counsel before taking action is essential. A New York business litigation attorney can review the partnership agreement, assess the circumstances surrounding the buyout, and advise regarding the potential claims. An attorney can also help identify relevant evidence, evaluate each party’s contractual obligations, and determine what relief may be available through litigation.
Contact an Experienced New York Business Litigation Attorney
A dispute concerning a partner buyout can have substantial consequences for you and your company. This is why it’s critical to have a knowledgeable business litigation attorney by your side who can help you understand your legal rights and remedies. At Barnes & Barnes, P.C., we offer trusted representation for a wide range of business disputes across Long Island, including those involving partner buyouts. Contact us at (516) 673-0674 to schedule a consultation and learn how we can assist you.
