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SHAREHOLDER & PARTNERSHIP DISPUTE LAWYER
TORONTO – CHAND & CO

Civil, Criminal and Regulatory Litigation

Lawyers in Toronto, Ottawa, and Windsor

416-583-2377

SHAREHOLDER LITIGATION

SHAREHOLDER & PARTNERSHIP DISPUTES IN TORONTO

Shareholder disputes arise in a variety of contexts, and it is important that shareholders understand their rights and options for dispute resolution prior to litigation. In cases where shareholder disputes cannot be resolved through negotiation, mediation, and/or arbitration, litigation may be the only option.

Shareholders in a corporation have a variety of remedies available under the Ontario Business Corporations Act and the Canada Business Corporations Act. The oppression remedy is perhaps the most powerful remedy and can be invoked when the conduct in question is either unfair or prejudicial to the interests of security holders, creditors, directors, or officers of a corporation. In the event that oppression has been found, the court has wide discretion to order remedies to cure oppressive conduct.

SHAREHOLDER & PARTNERSHIP DISPUTES IN TORONTO

PARTNERSHIP LITIGATION

Partnership disputes have the potential to disrupt and interfere with the day-to-day operations, continued growth, business interests and success of a venture. In Ontario, the Partnership Act governs partnerships and unless a formal partnership agreement is entered into, the Partnership Act determines the rights and obligations of each partner. In a case where a partnership dispute cannot be resolved through negotiation, mediation and/or arbitration, litigation may be a partner’s only option. Some examples of partnership litigation are: business disputes, disputes about partnership valuation, disputes about partnership or joint venture dissolution, preservation of partner’s rights and fiduciary duties, among others.

PARTNERSHIP LITIGATION

Business Partners and Their Legal Issues

Business partners may have a variety of legal issues that arise between them. These include personality conflicts, non-complete and confidentiality breaches, exit strategies and dissolution, or other general decision-making issues where the partners disagree. These may have remedies within the partnership agreement themselves, but where there is no resolution, the legal issue may turn to the courts for determination. Partners may be in breach of their non-compete agreements which breaches their fiduciary duty owed to one another.

Shareholder Disputes in Partnerships

Shareholder disputes can occur because of a breach of the shareholder agreement, potential breach of minority shareholder rights, dividend disputes, buy-sell agreements, or corporate governance issues, among others. These issues are various disagreements about different aspects of the relationship. A breach of the shareholder agreement could be over the terms contained within the agreement. Dividend disputes may be a difference in the amount that should be distributed. Other issues relate to conflicts between majority and minority shareholders.

Types of Business Partners Disputes

There are a variety of partnership disputes that can arise during the course of business. Typically, these partnership disputes are between business partners involving some sort of breach of fiduciary duties.

A fiduciary duty between partners is owing each other a duty of loyalty, duty of good faith, and duty of fairness. When these are breached, there is a breach of fiduciary duty.

Examples of these breaches can include financial disputes, management disputes, breach of contract, competing interests, and decision-making conflicts amongst others. The central theme is a disagreement between business partners that has some form of impact on their business relationship. Similar issues can arise in joint ventures as well. Typically these issues arise during the course of the business and its daily operations as well.

Partnership Dispute Resolution

A partnership agreement may outline the resolution for when a dispute arises. If this is not the case, the parties have the option to choose between mediation, negotiation, or arbitration, as well as the court process. Typically, it is best to avoid the court process if possible, due to the importance usually of maintaining a good relationship with the other party if there are to be future work prospects. Mediation, negotiation, and arbitration are typically cheaper than pursuing court action. Depending on the circumstances of the case, one method of resolution may be more effective than the other.

The Partnership Act and its Implications

The Partnership Act (Act) provides a framework for the relationship between partners carrying on business together. This Act defines a partnership as a relation between persons carrying on a business in common with a view to profit.

In order for there to be a partnership, there must be three criteria: 1) a business, 2) a view to profit, and 3) carrying on business in common and sharing the profits. If these three are met, the definition under the Act will be met and the business will be recognized as a partnership.

The courts also consider various factors to identify whether a partnership exists or not. These include control over the business, participation in management, sharing of profits, and responsibility for losses.

Depending on these factors, a court may recognize a partnership where it is unclear.

Importance of Partnership Agreements

Partnership Agreements are crucial in allowing parties to determine how disputes will be dealt with. This allows the parties to save on costs if drafted correctly. If an agreement is not created, the Act will guide the dissolution of a partnership.

Under the Act, a partnership is dissolved if it was for a limited term and that term has expired and if a partner dies or becomes insolvent, among others. This is why a partnership agreement is critical if those consequences are unwanted.

Achieving a Successful Business Partnership

A partnership agreement may be of consideration if the partnership is intended to last beyond the dissolutions under the Act. Further dispute resolution methods may be outlined in the partnership agreement to allow for effective management of the business. A partnership agreement will also clarify what happens if certain events occur.

Shareholder and Partnership Dispute Strategies

One of the most effective ways to prevent shareholder disputes and be proactive is through drafting a thorough shareholders agreement. This is the best way to ensure that all eventualities are covered. The shareholder agreement provides for a legally binding agreement that typically covers what happens in the case of certain events or disputes that occur.

Intellectual Property Concerns in Disputes

Intellectual Property is a broad category used to describe or refer to creations of the mind or other sets of intangible assets that may be owned by an individual or a company. Intellectual Property disputes arise from the unauthorized use of someone’s creations. Examples are the use of copyrighted content, trademarks, or patented inventions. These disputes in the context of partnerships can arise where it is unclear who owns the creation, is it the individual that created it, or does it belong to the partnership? This is again another reason why a partnership agreement is critical in clearly outlining this matter.

Navigating the Process

When a shareholder and partnership dispute arises, the legal process needs to be carefully considered. The relationship between partners may be a priority to maintain as compared to other legal processes. Therefore, other methods of resolving disputes may be more beneficial in these cases. Considerations of negotiation and mediation should be made if possible.

These will consider the best interests of both parties to help resolve their disagreements. Furthermore, negotiation will be conducted in good faith. Avoiding the expensive court system to negotiate with legal representatives may be of benefit.

Of equal importance is the evidence that is gathered prior to commencing a claim in the appropriate court. The types of evidence that will be relevant are communication between the business partner and its other partners, any legal rights that are outlined in the agreements, and maintaining any shareholder agreements or partnership agreements among other relevant documentation. Once this is obtained, a claim in the appropriate court will be commenced with an opportunity for the opposing side to respond.

Typically, the shareholder agreement or partnership agreement will contain specific clauses or terms that outline what should occur in the case of disputes. Some of these clauses may dictate mandatory arbitration where the court system may then not be available.

Exploring Alternative Dispute Resolution

Shareholder Agreements may call for methods of dispute resolution. Usually, these are by way of arbitration. Arbitration is a legally binding process that cannot be appealed through the courts, except in limited circumstances. Arbitration allows parties the freedom to set in place their manner of resolution and is a more informal process. However, the arbitrator usually has the final decision and their decision is binding.

Mediation is another dispute resolution process where a mediator serves to facilitate discussion and conversation between the two sides. This is to flush out and understand each party’s interests and to mediate a resolution between the parties. This method of dispute resolution is less costly than litigation and a party has the option to forgo mediation if it is not resulting in a solution.

Negotiation is another dispute resolution process whereby the two parties, either by themselves or by way of legal representation, work together to come up with creative solutions that allow both parties to walk away from the dispute with positive outcomes. Negotiation involves coming to the table in good faith and working towards a resolution. This is again less costly than litigation. Negotiation may not always work where there is a large power imbalance between the two parties.

Shareholder Dispute Resolution Tactics

When there are disputes that arise between shareholders, there are various considerations. One of these considerations is the rights of the shareholders. There may be a situation where there is a disagreement between shareholders of equal power. This is referred to as a 50/50 Shareholder deadlock. A shareholder agreement should discuss what occurs in these cases. Other alternative dispute resolution methods are also available.

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Why Choose Our Law Firm

THE ROLE OF LEGAL COUNSEL IN DISPUTES

The lawyers at Chand & Co. take on the responsibility of focusing on your dispute and let you get back to what is most important, running your company. Legal representation is key in reducing the stress that comes with these types of disputes. Our lawyers work with you and have considerable experience advising clients in shareholder and partnership disputes as well as other partnership matters.

Our lawyers represent shareholders, partners, owners, and creditors who are involved in disputes over the control and ownership of their businesses. We provide advice on issues that may lead to legal disputes, which include both internal and external matters, that involve your business.

Shareholder and partnership dispute lawyers at Chand & Co. work with you to explore and analyze all your legal needs. Not only will we guide you through the legal process, but we will tailor an approach that fits your needs and goals. This will allow you to return to your obligations owed to your company and leave the law to us.

To learn how our law firm can help you, please schedule a consultation:

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