Planning For Business Disputes For A Nevada LLC Or Corporations

Posted by: on Mon, Aug 06, 2012

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One of the most common forms of dispute we deal with as Nevada business litigators is the so-called business divorce or break-up of a small business where the partners are no longer able to get along and run the business (usually a Nevada limited liability company or Nevada corporation) together. These situations lead to costly litigation and emotional pain. What started as an exciting business venture becomes a sad chapter and often, a hard learning experience. We subscribe the view that – while it is okay to learn from mistakes – it is better to avoid them altogether with careful business planning.

One of the most important things for business partners to consider at the outset of a new start-up business venture is how they will deal with an “impasse” – or a failure to agree on some major decision regarding the business in the future. Many small businesses start with partners who agree to own the business 50-50. Many begin the venture with common goals and to agree on major decisions together – which is relatively easy in the beginning. However, as time goes by, differences of viewpoint and goals emerge. Often, a more dominant partner becomes a de facto head of the organization with the other, more passive partner, going along to get along.

The question that often arises when this kind of situation reaches the litigation attorney’s office – by either of the partners – is how they can either break the company up, with each partner going its own way, or how they can force their partner to go along with their way of doing things. Where the partners own the company 50-50, or agree to 50-50 voting rights, there is no way to force a partner to go along, and more often, there is no really clean way of splitting up the business – at least not one that both will agree upon.

Many small business owners have not planned ahead for this type of situation because they feel they can set up their Nevada legal entity or partnership using a “form store” or non-lawyer on-line service. These tools, however, cannot give them legal advice.

An experienced Nevada start-up attorney working on the formation documents for a new business can include language, for example, in the operating agreement of a limited liability company, dealing with the potential for such conflicts. Creative solutions should be considered before business is commenced – not when the partnership is falling apart.

One common clause we have used with some success is a provision stating that, if there is a dispute between the business owners (call them John and Mike) such that the relationship has fallen apart and they cannot resolve their differences, one of the partners – (say, Mike) has the right to make an offer to John to buy out his interest in the company for a proposed price. The interesting thing about the offer (and the incentive to play fair) is that if John does not want to sell out at the price offered (either because he wants to stay in the business or thinks the offer price was too low), he has the right to buy Mike’s shares in the business for the exact same price offered by Mike. Mike understands this at the outset, so he has an incentive not to make a low-ball offer. John is not without options when he receives the offer, and can either cash out, or take over the company.

Obviously, there is no one-size-fits-all approach to business planning, but thinking through these kinds of issues in the context of your new business required planning, and consultation with an experienced attorney. Otherwise – you risk costly and stressful litigation down the road.

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on corporate and business law, including advising businesses from start-ups to well-established companies in the jurisdictions where we are licensed.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. Our firm’s practice includes a strong emphasis on personal injury accidents. Call us at 702-384-7111.

Note: This article, and any other information you obtain at this website, is not offered as legal advice, nor should it be relied upon as such, nor is it a solicitation for legal services. Only a licensed attorney can advise you with respect to your specific legal needs. We welcome your contacting our firm to discuss such representation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.