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Business Law: Partnership and Shareholder Disputes
Bennett & Belfort, P.C. regularly handles business litigation matters involving partnership and shareholder disputes. Our attorneys have both litigated and published scholarly articles on various governance issues, including shareholder freeze-outs, breaches of shareholders’ fiduciary duty, and conduct alleged to be in violation of shareholder agreements.

Under Massachusetts law, minority shareholders of closely held corporations or partners in a partnership may not be “frozen out” of, or otherwise lose the benefit of their investment. In other words, the majority owners may not artificially (or in bad faith) prevent dividends, profits, distributions or other benefits generated by the business from being paid fairly to the minority owners according to their ownership interest. Courts have commented that a freeze out can make an investor’s share of the business worthless, and put pressure on the investor to sell their share to the majority investors at a artificially diminished price. In some instances, through a derivative process, shareholders may bring a legal action on behalf of all aggrieved shareholders or on behalf of the business entity itself.

There are many legitimate business reasons that underscore decisions made by majority shareholders or managing partners. Allocation and compensation of human resources, business investment decisions or incurring debt may well be necessary to advance business interests but can be viewed with suspicion. It is because of the tension between legitimate business judgment and nefarious conduct and self-dealing, that there is much scrutiny, debate and litigation relative to the handling of corporate decisions, particularly as to profit distributions, dividends and decisions as to capital investments.

Bennett & Belfort, P.C. is experienced in evaluating, advising on and litigating these partnership and corporate issues, whether as direct claims or derivative actions aimed at recovering losses experienced by our clients due to malfeasance.

It is critical to reflect the key terms of partnership and/or shareholder relationships in a comprehensive written operating agreement. Investors, owners and directors alike are cautioned to seek legal counsel when forming their business entity and carefully establishing the governing documents. Well crafted operating agreements can help avert a variety of business claims by principles, owners, officers and shareholders by, for example, spelling out dispute procedures or reducing discretion over the issuance of dividends or profits. Further, partnership/shareholder agreements should spell out how the company deals with the death or disability of a shareholder or partner, a deadlocked vote, quorum rules, rules regarding conflicts of interest, and other procedures that can limit the potential for litigation in the future by planning for such contingencies.

In the event litigation is necessary, the lawyers at Bennett & Belfort, P.C. are prepared to represent clients in a wide array of corporate litigation. We have experience litigating freeze out cases, derivative suits, and breach of fiduciary claims in both state and federal Court. Our goal is to carefully evaluate our client’s position at each step of litigation. Sometimes, this involves immediate, aggressive measures, such as filing an emergency injunction to prevent a bad actor from absconding with corporate opportunities or profits. Other times, cases can be resolved early on in litigation by skillful negotiating. If trial is necessary, our attorneys are experienced trial lawyers and we will be ready for Court.

If you would like further information regarding the laws pertaining to shareholder or partnership disputes or you wish to discuss these issues with our attorneys, please call our office at 617.577.8800 or email dbelfort@bennettandbelfort.com or tbennett@bennettandbelfort.com.