Can I Sue My Business Partner?
I am asked this question frequently by clients who are co-owners of a business, when they discover (or believe) that their partner is improperly taking money out of the business, or is taking actions that are detrimental to the business. As with most everything in the legal world, the answer is: it depends.
First, it is important to know what kind of business you have, and to review the governing documents, if any. An informal partnership, where everything was decided based on handshakes and oral conversations (and nothing was reduced to writing) will leave you with significantly less options than a formal LLC or corporation that has an operating agreement or bylaws.
In situations where a partner believes that money is being mishandled, a first step is to gain access to the bank account records and other accounting information of the company. This will allow the suspicious partner to examine the records with an accounting professional to determine whether or not there is actually an issue. Ohio law gives LLC members and shareholders of a closely held corporation the right to inspect the books and records of the company. Obviously, if one partner is resisting producing such records, that can be a major red flag.
Once it is clear that there is a problem, rushing into court is not necessarily the place to start. Often, dialogue can resolve differences, and partners can come up with a solution without wasting money on legal fees. However, there are many situations where parties simply need a court to intervene. In those cases, it is critical to make sure that the attorney involved is experienced in complex commercial litigation.
A general practitioner is often just knowledgeable enough to be dangerous. A few years back, I was involved in a bitter dispute between three owners of a very profitable company. We took aggressive action early on, and the applicable Ohio statutes gave the opposing side a specific deadline to respond. The other attorney was a general practitioner (and a very good lawyer), but he did not have experience in corporate law specifically. Unfortunately, he was not aware of the statutory deadline, and moved forward in the case without taking the proper responsive actions. Months later, when the court was dismissing his case against my client, the judge asked the attorney why their client had not complied with the deadline. The attorney had to admit to the judge that he had no idea the deadline even existed, because it was tucked away in a section of the Ohio corporate laws that were not well-known. That mistake, while understandable, did not prevent the court from throwing out the opposing case. With only our side’s claims alive, we were able to dictate the terms of the settlement.
A suit against a business partner is an emotional ordeal, in addition to a legal and financial commitment. Before pulling the trigger, make sure your attorney has evaluated the case from all angles and is prepared to handle the nuances of the Ohio statutes.