Minority Business Partner Rights

Answer:

As an experienced Delaware County Business Lawyer, I get questions all the time from clients about minority partners in a business.

If you are the minority partner, the first thing you need to know is that you are at a clear disadvantage in comparison to the majority owner. The majority partner has control and control is key, as they say.

Once the majority partner has control, that control is only tempered or modified by what we call a duty of fiduciary duty and/or a duty of loyalty to you and to the company. In effect, the majority partner cannot do anything that harms your interest in the company or harms the company.

That said, this doesn’t necessarily mean that the majority partner cannot lower your salary, change your benefit package, or do anything to you that on a daily basis may have a negative impact on your life.

What are your options if a majority partner is negatively impacting your life? Your options are to approach the partner and say, “Hey, I’d like to move out of here because I’m not sure I’m being treated fairly.”

The easiest way to exit the partnership is through the guidance of the withdrawal provisions of an established agreement. This decides how you’re going to exit the company and get your value, as well as how and when you are permitted to move on to another business.

If you and the majority partner do not have an agreement in place and are not able to reach an agreement, things can get a little ugly. You will still need to get an appraisal, arrive at an agreed upon valuation from either the accountant or between yourselves, and receive the value of your shares. If you are unable to establish a value for your exit from the company and/or agree on exit terms, you may need to proceed to litigation.

Litigation can be resolved by either mediation, arbitration, or a trial.

In mediation, you a third-party enters into the formula and says, “This is how we’re going to work things out going forward.” This may enable you to stay and hope your partner changes their ways regarding to how they’re treating you. It may also lead to establishing the company’s value and enabling you to moving on.

Arbitration is another route you can go that is less expensive than trial. If you’re into the litigation phase, you are delving into whether you’ve been if treated fairly. This includes the question of whether the majority partner violated their duty of loyalty and/or fiduciary duty to you and to the company. The answer to these questions will depend on what the partner has done and the facts of your particular case.

This educational blog was brought to you by experienced Business Attorney Walter J. Timby. Our law firm proudly represents clients throughout Delaware County, as well as Pennsylvania, the greater Philadelphia area, Delaware and New Jersey.

If you have any questions about minority partners in business, please contact our Delaware County Business Lawyers for a free case evaluation. Let our knowledge work for you.