Founder
When business partners no longer see eye to eye, it can lead to tension and uncertainty about the company’s future. In Massachusetts, forcing a business partner to sell their ownership interest isn’t always straightforward, but it can be possible under certain legal or contractual circumstances. Understanding your rights, the terms of your partnership or operating agreement, and available legal remedies is the key to protecting your interests while minimizing disruption to your business.
Understanding When You Can Force a Partner to Sell
In Massachusetts, the ability to remove or force a business partner to sell depends on the structure of your business and what is outlined in your governing documents.
The most common business structures include:
- Partnerships
- Limited Liability Companies (LLCs)
- Corporations
Each has different rules and procedures for transferring ownership or removing a member.
If your partnership agreement, operating agreement, or shareholder agreement includes buyout or removal clauses, you may be able to compel a sale under those terms.
Without an agreement, however, you typically cannot force a sale without going through the courts.
Reviewing Your Operating or Partnership Agreement
Before taking any action, review your foundational business documents. These agreements often include:
- Buy-sell provisions, which describe how and when ownership interests can be sold.
- Dissolution or withdrawal clauses, which explain what happens when a partner wants out or when others want them out.
- Dispute resolution terms, such as mediation or arbitration requirements.
If your agreement allows for a buyout or expulsion under specific conditions, you’ll need to follow those procedures carefully to avoid breaching the contract.
When Legal Action May Be Necessary
If your partnership agreement doesn’t provide a clear way to remove a partner, you may need to turn to the courts.
In Massachusetts, you might have grounds to force a sale or dissolution if a partner has:
- Engaged in fraud or misconduct that harms the business.
- Breached fiduciary duties, such as acting in their own interest instead of the company’s.
- Become incapacitated or unable to fulfill their obligations.
- Caused a deadlock that prevents the company from operating effectively.
Courts can order a forced buyout, dissolution, or other remedy when continuing the partnership is no longer practical or fair.
Exploring Alternatives Before Litigation
Legal battles between partners can be expensive and time-consuming. Before heading to court, consider:
- Negotiation: Propose a voluntary buyout based on a fair market valuation.
- Mediation: A neutral third party can help find a compromise that preserves relationships.
- Arbitration: If your agreement requires it, arbitration can offer a faster and more private resolution.
These approaches may lead to a resolution without disrupting your business operations or reputation.
Protecting Yourself and the Business
If you’re dealing with an uncooperative partner, take proactive steps to protect your interests:
- Keep detailed financial and operational records.
- Document all disputes or misconduct.
- Consult with a Massachusetts business attorney to assess your options under state law and your governing documents.
These actions can strengthen your position in negotiations or litigation.
Moving Forward With the Right Legal Guidance
Deciding whether to force a business partner to sell is rarely simple. The right path depends on your business structure, agreements, and the specific circumstances behind the dispute. An experienced business law attorney can help you interpret your contracts, assess legal remedies, and pursue a strategy that safeguards your ownership and the company’s future.
Take Control of Your Business’s Future
If you’re facing an internal conflict or considering removing a business partner, we can help you understand your legal options and protect your investment. Contact LaFountain & Wollman, P.C. today to schedule a confidential consultation and get the guidance you need to move forward.
Frequently Asked Questions About Forcing a Business Partner to Sell
Can I buy out my partner even if they don’t agree?
Yes, but only under certain conditions. If your partnership or operating agreement includes a buyout provision, you can follow that process to purchase your partner’s share. Without one, you’ll likely need to negotiate or seek a court order if the disagreement can’t be resolved voluntarily.
What happens if my business partner just stops participating in the company?
If a partner becomes inactive or fails to meet their responsibilities, your options depend on your governing documents. Some agreements allow for removal due to nonperformance. If not, you may still be able to pursue a dissolution or legal remedy if the lack of participation harms the business.
How is a departing partner’s interest valued in Massachusetts?
Valuation methods are often outlined in the operating or partnership agreement. If there’s no set formula, a professional business valuation can help establish a fair market price. Courts will also consider the company’s assets, profits, and goodwill when determining a buyout amount.
Can I prevent a partner from selling their share to someone else?
Many agreements include restrictions on transferring ownership without approval from the remaining partners. If yours doesn’t, you can still negotiate a right of first refusal or other terms to limit outside involvement in the business.