When most people start a business, they don’t think about falling out with their business partners.
On the contrary, this is a time of optimism and hope.
But unfortunately, sometimes, business relationships do become strained.
Below, we will discuss what happens when business partners decide to part ways and what you can do to protect yourself and your business.
Can My Business Partner Push Me Out?
A surprising amount of clients ask us something along the lines of “My business partner is trying to force me out.
What are my options when my partner is forcing me out of business?” Most people are surprised when a business partner tries to force them out of the business.
For many, this never even seemed like a possibility. Your business partner’s ability to force you out of business depends on several factors.
Those factors include:
- The type of entity,
- The governing documents of your business,
- Agreements with your partner, and
- Applicable laws and regulations.
We will go over each of these factors to better understand how they may apply in your particular situation.
The Type of Entity
The mechanism your business partner may try to use to push you out could depend on the type of entity your business operates.
For example, general partnerships tend to be less formal than companies or corporations. This lack of formality could make it harder to figure out your options when your business partner tries to force you out.
Corporations and limited liability companies (LLCs), on the other hand, typically will have governing documents that touch on these types of situations.
Check the Governing Documents
As mentioned above, many corporations and LLCs will discuss the issue of buyouts in the governing documents of the entity.
For example, a corporation will typically have bylaws, and an LLC will have an operating agreement or company agreement.
The governing documents will usually set forth the rules for governing and operating the business. Important provisions may include:
- The rules for appointing a board of directors or managers,
- The duties and responsibilities of officers, and
- Classes of ownership.
If your partner does not have a controlling interest (typically representing 51% or more of the ownership of the business), then their options to force you out of decision-making may be limited unless they get other owners to agree.
Further, some companies require a “super-majority” (typically representing 67% or more of the voting power) for certain decisions. This could make attempts to squeeze you out even more difficult.
The governing documents might also have buyout or “push-pull” clauses that discuss how one owner can buy out the interest.
The provisions will typically discuss how buyout offers can be calculated and made.
Under most push-pull provisions, if an owner makes an offer for another owner’s interest in the business, the other owner has the right to either accept the offer or buy out the first offeror’s interest at the same price.
Push-pull language can help keep business partners honest when trying to buy each other out of the business.
Agreements with Your Partner
In addition to governing documents, shareholders, members, and partners can usually enter into agreements with one another.
These agreements often involve settling questions on how business partners should resolve certain issues. They also, quite frequently, discuss buyout agreements and valuations.
Even if you don’t have a formal business entity that requires governing documents, it’s a good idea to enter into a partnership agreement when you go into business with someone else.
If you have signed an agreement with your business partner, you should carefully review it to determine how it may affect your partner’s attempts to force you out of the business.
Applicable Laws and Regulations
If you do not have governing documents or an agreement, or if those documents are silent on the issue, then you may need to check applicable laws and regulations.
For example, the Texas Business Organizations Code (TBOC) provides laws applicable to partnerships, corporations, and LLCs.
In addition, the TBOC can offer more information and regulations on things such as the rights of governing persons and the removal of officers.
Talk to an Attorney Today
If you’ve been wondering, Can my business partner push me out? It may be a good idea to talk to a business law attorney.
A good business law attorney can review the governing documents and agreements related to your business and let you know what rights you may have.
You don’t have to let business partners push you around. An attorney can help you fight back.
Massingill is proud to have a team of attorneys that understand business law in Texas.
So whether you are worried about a business partner trying to force you out or you just want to start a new business, we can help.
Our knowledgeable and experienced staff is well-versed in business law, and we aim to provide top-tier legal services to our clients. So contact us today to book your initial consultation.