Business disputes in North Carolina, whether between partners, LLC members, corporate shareholders, or between companies and their owners, occur quite frequently and for a multitude of reasons. Maybe you disagree about the direction of the company or endeavor involved; maybe there is some financial dishonesty involved; maybe your management style differs with that of your colleague(s) to the extent that working together just is not feasible; or maybe there’s a compensation or other economic issue driving a wedge between you and the other business owners. Regardless of the reason, North Carolina law tends to defer to your partnership, shareholder, or operating agreement to resolve disputes, or otherwise direct how those disputes can be resolved.
The Importance of a Written Agreement
While written agreements on how a business relationship will operate are not required to do business in North Carolina, the unintended consequences of owning a business with one or more people without a written agreement could be substantial if that relationship deteriorates. How should the profits and losses be allocated? What obligations do the parties have to contribute capital? Are certain owners required to be paid a salary or paid distributions? Who has managerial control and what is the extent of each owner’s authority? What happens if one of the owners dies or files a petition for bankruptcy or divorce? These issues should all be set out in a written agreement, signed by all involved parties at the outset of any business relationship. In the absence of these provisions, North Carolina law provides certain default rules which govern business relationships. A written agreement will help provide all owners the confidence that their expectations will be met.
When companies or partnerships fail to formalize their business relationship prior to operation, disputes often result in costly litigation. While there are some default rules that govern the operation of the relationship, those rules fall short of resolving most disputes which may have otherwise been sorted out with a written agreement. For instance, if you are supposed to be paid quarterly interest or guaranteed return on your capital contribution and the only agreement you have to rely on is oral, you may have a substantial uphill battle in court ahead of you. However, if your arrangement is set out in a writing signed by all parties, the dispute either never occurs or is easily resolved outside of court, with little or no attorney involvement. The mistake people make is failing to consult an attorney at the formation of their business in order to save money, only to spend ten times that amount in court later on after a dispute arises. An experienced business litigation attorney can help guide you through the organization and formalization of your business arrangement, and, if necessary, help you navigate the litigation process if your business relationships deteriorate.
*This blog is for educational purposes only and is not intended to provide, nor should it be used for, legal advice. Nothing herein should be construed as providing legal advice. By using this blog, you the reader acknowledge that no attorney-client relationship is being or has been created with the Author or his law firm. Non-attorneys should not use this blog for legal advice and attorneys should not use this blog as a substitute for their own legal research.