When a business becomes the subject of strife and disputes between business owners, whether the business is a corporation or a limited liability company, the lawyer for the company has a conflict of interest and should voluntarily decline to advise any of the parties.
Each side should consult a lawyer who is not pre-programmed to recommend only resort to a lawsuit or a lawyer who does not have sufficient experience to counsel with respect to the limits and perils of litigation, its costs and its effect on the business and the quality of life of the disputants. With the aid of their own lawyers, the parties should carefully consider the following.
As to corporations, the certificate of incorporation, by-laws and shareholder agreements and minutes or consents and the provisions of the New Jersey Business Corporation Act and cases under it concerning what rights and obligations they have as directors and officers shareholders and what remedies the Courts are empowered to order in case of certain disputes or events commonly defined or defined in the statute as “deadlock”.
As to LLCs, the certificate of formation and the operating agreement, if any, as to the rights and obligations of members and managers and the applicable provisions of the New Jersey Limited Liability Company Act which remains in effect as to LLC’s formed before March 14, 2013, and of certain applicable provisions of New Jersey’s Revised Uniform Limited Liability Company Act which will apply to all LLCs regardless of when they were formed and what remedies the Courts are empowered to order in case of certain disputes or “deadlock”. And with LLCs, there are special provisions regarding expulsion of LLC Members.
Whether there is a practicable opportunity for peaceful resolution of the conflicts, with or without using non-binding mediation, before resorting to litigation. What are the effects of the disputes and strife on the functioning of the business? Is it reasonably possible that agreements could be negotiated which would enable the parties to continue together, even if not with cordiality and complete trust? Is a negotiated business divorce reasonably possible?
Or is a lawsuit the only way to get to a reasonable resolution?