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Partnership and Shareholder Disputes

China partnership shareholder

 

The attorneys in our law firm’s Business Trial Group have a proven track record of helping clients obtain significant recoveries in shareholder and partnership disputes. We frequently represent clients in shareholder derivative litigation, including minority owners that have been victimized by shareholder oppression.  The Business Trial Group is experienced at navigating the complex issues involved in disputes between business owners, partners, and shareholders.

If you believe you have a claim arising from a shareholder or partnership dispute, the Business Trial Group may be able to help. We represent clients on a contingency-fee basis, which means you do not pay any legal fees unless there is a recovery in your case. For a free case review, please call or email us.

In any partnership or corporation, conflicts will inevitably arise between partners or shareholders. Most of the time, the partners or shareholders can resolve the disagreement among themselves. Some disputes, however, may involve matters that are integral to the continued operation of the business, or present otherwise intractable differences between the partners or shareholders.

In those situations, a skilled team of business and commercial litigation attorneys can help avoid expensive and protracted litigation when possible, or can guide a party to the dispute through the litigation process. Our China partnership and shareholder litigation lawyers can also help partners or shareholders with time-sensitive needs by providing emergency litigation services.

 

Types of Partnership and Shareholder Disputes

Significant disputes between partners or shareholders may arise at any point in the life of a business, from disputes during the formation of the company to disagreements over its dissolution. Disputes requiring formal dispute resolution or litigation may include those related to:

 

  • Partnership or shareholder agreements;
  • Capital contributions by individual partners or shareholders, or the issuance of shares of other equity;
  • Operating agreements, bylaws, or management agreements in a limited liability company;
  • Employment agreements, including non-competition agreements and other restrictive covenants;
  • Confidentiality or trade secret agreements;
  • Breach of fiduciary duty claims;
  • Severance agreements for partners, shareholders, officers, or employees; and
  • Dissolution agreements, particularly distributions of remaining assets to individual partners or shareholders.

 

What Is Shareholder Oppression

Shareholder or minority oppression occurs when majority owners use their control to deny minority owners the right to participate in, or enjoy financial returns from, a company, usually a small, closely-held company. Examples of oppressive conduct include:

 

  • Refusing to declare dividends or distributions when the company is profitable;
  • Diverting earnings to the majority owners through excessive compensation;
  • Removing the minority owners from the board or other management position;
  • Entering into favorable contracts with affiliates of the majority owner;
  • Using company funds to pay personal expenses;
  • Diluting the minority’s ownership interest;
  • Withholding or concealing the company’s books and records; and
  • Misappropriating corporate assets for personal use.

 

These are “squeeze-out” techniques designed to improperly reduce or eliminate a minority owner’s interest in a company.

Dispute Resolution Among Shareholders and Partners

Litigation can be both time-consuming and costly, and may not be the best method of resolving differences within a business. Documents filed in lawsuits are usually public record, meaning that litigation may also expose a company’s inner conflict to public scrutiny. Various methods of alternative dispute resolution, or ADR, are available to help partners or shareholders resolve disputes privately. Arbitration, for example, resembles a trial but takes place out of the public eye, and is conducted by a neutral arbitrator with specialized training and certification in dispute resolution. Another common form of ADR is mediation, in which a trained, neutral mediator attempts to facilitate a settlement between the parties.

Shareholder Oppression Lawsuits

For minority owners, a saving grace from oppressive conduct frequently comes from the fiduciary duties owed by the majority owners. As a general rule, majority owners owe a fiduciary duty to run the affairs of the company in the best interest of the company, and not in a manner that favors their own interest over the interests of minority owners. Although minority owners cannot force the majority owner to act fairly, they do have a remedy for the majority owners’ oppressive, “squeeze-out” attempts – a lawsuit for breach of fiduciary duty. The minority owner can request money for damages, dissolution of the company, and, in unique circumstances, seek a court-ordered buyout, in which the owner could recover the fair market value of his or her shares.

In China, shareholders of a partnership have the right to inspect the books of companies they hold an interest in. Before or in conjunction with filing a lawsuit, a shareholder may demand to inspect the following documents:

 

  • Minutes of meetings of the board of directors, committees, and shareholders;
  • Records of actions taken without a meeting;
  • Accounting records, including salary and bonus payments made to personnel and all records of vendors paid by the corporation;
  • The record of shareholders;
  • The names and business address of the corporation’s current officers and directors;
  • The bylaws of the corporation;
  • Disclosure of lawsuits filed against the corporation; and
  • Any other books and records of the corporation.

 

To exercise these inspection rights, a shareholder must make a demand on the corporation in good faith and for a proper purpose. A proper purpose for inspection is defined as one that is lawful in character, not contrary to the interest of the corporation, and is intended to protect the shareholder’s interests. Additionally, a director of a corporation is entitled to inspect and copy the corporation’s books, records and documents for any purpose reasonably related to his duties as a director. A corporation that fails to comply with a proper demand is subject to court-ordered inspection and may be required to pay the shareholder’s costs and attorneys’ fees associated with enforcing his or her inspection rights.

If you believe you may have a shareholder oppression or derivative claim, contact our law firm Business Trial Group today for a no-obligation case review.

Litigation Between Shareholders and Partners

When partnership disputes occur, you need an attorney to help protect your interests and ensure a fair resolution. The Business Trial Group is experienced at litigating a wide range of disputes, including real estate partnerships, medical partnerships, accountant partnerships, law firm partnerships, and many others. Our familiarity with complex and detailed partnership disputes, and our relationships with respected accountants and valuation experts, allow us to effectively represent our clients.

The formation, operation, and dissolution of China general, limited liability, and limited partnerships are governed by the China Partnership Law. Most partnerships are based on a signed agreement that sets out the terms and conditions of the partnership. A partnership, however, does not require a written agreement and can be established through an oral agreement. If there is a written agreement, the document will determine the partners’ rights, responsibilities, and the terms for withdrawal or dissolution. To the extent the partnership agreement does not provide certain terms and conditions, China’s partnership statues will govern. Under China law, a partnership agreement may not restrict a partner’s access to books and records, eliminate the fiduciary duties of loyalty or care, or eliminate the obligation of good faith and fair dealing.

The Business Trial Group has successfully represented clients who were victimized by, among other things, dishonest partners in control of partnership assets and partners who were wrongfully ousted by controlling management. Some common partnership disputes include:

 

  • Violations of partnership agreements, operating agreements, or bylaws;
  • Breaches of fiduciary duty;
  • Ownership and management conflicts;
  • Inappropriate executive compensation;
  • Breach of non-compete, non-solicitation, and trade secret agreements;
  • Misappropriation of assets and corporate theft;
  • Negligent management;
  • Management self-dealing;
  • Embezzlement; and
  • Dissolution and asset division.

 

If you are involved in a partnership dispute, contact the Business Trial Group today for a no-obligation consultation to learn how we can help protect your rights and investment.

When partners or shareholders cannot find a negotiated or mediated settlement, they may wish to proceed to litigation. Litigating a dispute between partners or shareholders requires a careful and measured approach. Emotions may run high during disputes within a business, and our partnership and shareholder litigation lawyers have experience representing China clients in such disputes both rigorously and objectively, taking care to assert our clients’ rights while protecting the business.

Emergency Relief

Certain situations may arise during a dispute between shareholders or partners that call for a quicker response than is possible through the usual courthouse processes. We can provide our clients with emergency litigation assistance when, for example, they need to prevent an opposing party from taking a certain action, or when they anticipate being the defendant in a lawsuit and want to move first. We can file emergency motions for temporary restraining orders or preliminary injunctions, often on short notice, and can assert our clients’ rights through petitions for declaratory judgment.

Our experienced shareholder and partnership litigation attorneys represent clients on a contingency-fee basis. This means you will not have to pay any legal fees as your lawsuit progresses. Your attorneys’ fees will be paid solely from the amount recovered in your case. For more than ten years, the China partnership and shareholder litigation attorneys of this law firm have provided business law services to clients in Beijing, Shanghai, Shenzhen and Guangzhou areas.

 

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