Corporation and Partnership Law,

Interrelationships of Partners and Shareholders,

and Disputes and Dissolution Rights of Partners and Shareholders

Breaking Up is Hard to Do. Nowhere is that phrase more true than in the dissolution of a business relationship. After years and often decades dedicated to a business, people find they can no longer get along with their partners, whether due to personality difference, or different goals or expectations as to the direction the business should take. This is especially true in difficult economic times where the partners or shareholders often focus on who is generating the business today and overlook the past contributions of the others.

          When there is equal ownership, either the entity becomes deadlocked and ceases to function, in which event judicial dissolution is available, or the partners/shareholders decide to dissolve the business, i.e. voluntary dissolution. However, when ownership is not equal, frequently the minority partner/shareholder finds that he/she is being forced out or squeezed out of the business, whether by unequal monetary treatment, being locked out of managerial participation, or by more subtle but no less effective means.

          New York’s Business Corporation Law provides protection for shareholders who are being subjected to oppressive conduct by the majority shareholders of a corporation. In addition to shareholder derivative actions, and actions against directors and officers for breach of their fiduciary duties, a minority shareholder can bring an action for dissolution of the corporation based on the oppressive conduct of the majority or looting or corporate waste. Dissolution provides a means of redress when a minority shareholder’s “reasonable expectations” are not met, including being arbitrarily fired from their job.

          Different rules apply for partnerships, which are contained in New York’s Partnership Law. Unlike the more restrictive basis for dissolutions for corporations, partnerships can be dissolved by the express will of a partner as long as the partnership does not have an express time period of existence. Absent an express provision to the contrary, all partners have an equal right to manage and conduct the partnership’s business; and to examine its books. These rights are broader than those enjoyed by shareholders in a corporation. Partners have a fiduciary duty to each other which requires them to act in good faith and with fairness in all partnership matters.

          Obviously partnership and corporation law is complex and cannot be fully described here and consultation with an experienced business litigator is strongly suggested.

Hoffman, Polland & Furman, PLLC.
220 East 42nd Street
New York, New York 10017
Phone: 212-338-0700
Fax: 212-338-0093