Q. What is “business litigation”?
We use the broad term “business litigation” to describe any litigation for control of a privately-owned company. Other terms we frequently see are “freeze-outs,” “squeeze-outs,” “business divorces,” “oppression” and “breach of fiduciary duty.”
Q. What usually causes “business litigation”?
Greed, dishonesty and ego. Business litigation cases often arises when one co-owner decides to deprive another co-owner of the economic benefits of the business. We have also seen business litigation arise when one owner excludes the other(s) from control of the business.
Q. Should I represent myself in this kind of case?
Absolutely not. Business litigation can become extremely complex; it often presents issues of fraud, breach of fiduciary duty, employment law, contract law and equitable remedies. The type of business organization involved in any given case (i.e., corporations, partnerships, LLCs) also matters, because Illinois has different statutes governing different types of businesses.
Litigation between co-owners of a business frequently becomes a bitter, hotly-disputed affair.
Q. How do I avoid “business litigation”?
We recommend several strategies:
- Don’t go into business together without a written agreement that governs an exit strategy. Depending on the type of business organization, this document can be called a shareholder agreement (corporations), a partnership agreement (partnership) or an operating agreement (LLC). If a co-owner wants to separate from a business, the written agreement can govern his / her respective rights and obligations upon separation.
- Respect the need for teamwork and sharing. The co-owners must understand that they are in business together. Good communication and a commitment to dealing honestly with the other co-owners solves most problems.
- Don’t wait to obtain legal advice. One common strategy to squeeze out a minority co-owner involves delay; the majority co-owner locks out the minority co-owner, makes empty promises to buy out the minority co-owner in the future, essentially daring the minority co-owner to sue. If the minority co-owner does nothing, the majority co-owner may later assert defenses based on that delay.
If you find yourself in need of a better explanation, please call us today.
