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Disputes Between Owners Of A Business – Part II

On Behalf of | Aug 28, 2014 | Business Disputes

In Massachusetts and New Hampshire if a minority owner of a business is forced out of a closely-held company, the rights and obligations of the parties in how and where to resolve the dispute is first determined by any agreement between them; whether it be a Shareholder Agreement, LLC Membership Agreement / Operating Agreement, or Partnership Agreement. Such an agreement may require the parties to arbitrate their disputes and/or might provide a forced buyout of the departing owner based on a formula in the agreement if certain facts have occurred. For example, the agreement may have a different ownership buyout purchase price formula and procedure if the departing owner is fired for cause or leaves on his own rather than if he is fired without cause. If the agreement provides that owner with lesser rights if he quits, the goal of the other owners may be to make his work conditions or compensation so intolerable that he does quit. If a judge finds that is the case, the judge may determine that the actions by the co-owners constituted an illegal freeze out and the departing owner may be entitled to a variety of remedies including reinstatement of employment and a buyout of his ownership interest and other damages. As a practical matter, reinstatement of employment while perhaps providing some leverage to the departing owner rarely works as a long-term solution and is akin to divorcing spouses sharing the marital residence.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].