When Business Partnerships Break Down: Litigation Options for Closely Held Companies in Atlanta

Most closely held companies in Atlanta begin with optimism. Partners often share a vision, divide responsibilities, and trust that hard work will carry the business forward. As companies grow, the relationship between partners can fray.

When conflict arises, the impact can be immediate and deeply personal. Unlike large corporations with layers of management, closely held businesses often depend on a small number of decision-makers. A breakdown between partners can paralyze operations and put the organization at risk. The unfortunate reality is that litigation may be unavoidable in these situations.

Breach of Fiduciary Duty Claims

In many partnership disputes, allegations focus on fiduciary duties. Partners in closely held companies typically owe each other duties of loyalty and care. When one of these parties allegedly breaches that duty, they could be held liable for damages by their partner.

A breach of fiduciary duty claim may arise if a partner diverts corporate opportunities or engages in self-dealing rather than putting the organization’s interests first. Breaching a fiduciary duty is one of the most common causes of litigation between partners.

Shareholder or Member Derivative Actions

Sometimes the alleged harm is not directed at a specific partner, but at the company itself. In such situations, a shareholder or LLC member may file a derivative action.

A derivative lawsuit allows an owner to file a lawsuit on behalf of the company. More often than not, these lawsuits are filed to prevent a partner or executive from taking an action likely to harm the organization.

Oppression of Minority Owners

Minority owners in closely held companies frequently find themselves in difficult positions, as they can’t influence business operations on their own. Litigation is common when minority owners feel their rights have been violated, especially when they are blocked from viewing company records.

Oppression claims often involve allegations such as withholding distributions, terminating a minority owner’s employment, or excluding them from decision-making in ways that defeat their reasonable expectations. Georgia courts recognize that closely held companies resemble partnerships in many respects, and they may evaluate conduct accordingly.

Access to Records Suits

Some lawsuits between partners are related entirely to transparency issues. When one partner feels they are being frozen out of the business or denied access to important documents, they might file a lawsuit to secure access to those records.

Georgia law provides shareholders and LLC members with certain rights related to inspecting company records. This is true even for partners who are not actively involved in the day-to-day operations of the business.

Injunctive Relief

In high-conflict partnership disputes, time is critical. If there is a risk that a partner’s immediate actions could cause irreparable harm or jeopardize the business, it may be time to consider a lawsuit seeking emergency injunctive relief.

Georgia courts can issue temporary restraining orders and preliminary injunctions to preserve the status quo while the case proceeds. This could prevent your partner from taking actions that cannot be undone, like selling company property or shutting down operations.

Alternative Dispute Resolution Options

There are other options available to you outside of the traditional litigation process. Known as alternative dispute resolution—or ADR—these options are useful for resolving business disputes outside of the courtroom. There are several reasons this approach might be best, from protecting the parties’ privacy to avoiding the high costs of litigation.

Some parties agree to ADR with the hopes of sorting things out, while others are required to go this route because of language in a contract. Either way, some of the most popular options include the following:

Mediation

Mediation is widely considered the most flexible form of ADR. A neutral mediator works with both sides to facilitate settlement discussions. While the goal is to reach common ground, the mediator will not make a final decision like a jury would at trial. In reality, there are times when mediation fails to result in an agreement.

In closely held business disputes, mediation can be very helpful because it allows for creative solutions that courts cannot order. Partners might negotiate a structured buyout, realign management responsibilities, or even work out a buyout. It is often possible to resolve disputes through this process for a fraction of the cost of traditional litigation.

Arbitration

Arbitration is more formal than mediation and differs in that the end result is typically binding. Most of the time, a panel of arbitrators hears evidence and arguments and then issues an award that is generally enforceable like a court judgment.

Arbitration can offer advantages, including privacy and the possibility of a faster resolution compared to traditional litigation. These benefits might be enough to make this approach your preferred option.

Other Options

Beyond mediation and arbitration, several other dispute resolution tools may be available. Early neutral evaluation allows the parties to present their positions to an experienced third party, such as a retired judge or seasoned business attorney, who provides a nonbinding assessment of the case’s strengths and weaknesses. This outside perspective can shift negotiations and promote settlement.

Some partners make use of an option known as a mini-trial. This process occurs outside the courtroom and involves both sides presenting a condensed version of their case to a neutral third party. This can potentially resolve a dispute or give the sides a clear picture of where negotiations should head.

In some situations, facilitated negotiations between counsel may also resolve the dispute efficiently. There are many options, and an attorney could help you find what works best for your business.

Let Poole Huffman Guide You Through Disputes and Litigation

When business partnerships break down, the stakes are high. An attorney can help you evaluate your options, which include everything from filing a lawsuit to negotiating a reasonable settlement. Reach out to Poole Huffman as soon as possible to discuss your options during a confidential consultation.