Oftentimes companies and firms do indeed break-up due to many factors, some seen and others unseen. When such inevitabilities do occur, the firm may have to deal with the circumstances of such break-up, at times such event produces many difficult challenges. This article will examine some of the possible issues at stake, which may result from this problem, and define some legal areas and issues for possible court actions or arbitration and mediation alternative, aimed at safeguarding shareholder rights.
Breach of Contract -This is one of the more common problems arising from a sudden break-up of a firm. The partners will have to examine the original contract drawn-up when the company was put together. Breach of Contract occurs when one or more of the original founding members decides for some reason to pull out of the partnership without fulfilling their contractual obligations to the firm. The partners may negotiate a settlement on their own, using arbitration or mediation techniques. Other methods such as a court action may also become necessary, where the plaintiffs may seek for court judgments and remedies such as Compensatory Damages, Consequential and Incidental Damages, Attorney Fees and Costs, Punitive Damages and Liquidation Costs, and more. Depending on the court’s verdict, parties to this civil case may benefit, from the court’s order.
Breach of Fiduciary Duty-This is often linked to the negligence issue; courts often consider issues such as duty and causation of damages, and whether the actions of the defendant as a result of the duty owed has or will produce negative effects on the ability of the firm to function and discharge its obligations in any way. The Plaintiffs often invoke a legal concept known as “res ipsa loquitur”, which simply means that the action of the defendants speaks for itself, and no other information may be required in other to determine the negligence on the part of the defendants.
Employment Contracts-These are very important documents, which should always be scrutinized prior to accepting such contracts. They generally define the terms and obligations of the deal such as separation terms, probationary periods or duration periods for employees or partnerships to turn in their resignation letters, Holiday and Vacation pay and so on. All employees or business partnerships involved in any kind of joint partnership business obligations must pay a great deal of attention to the details of their contracts because it is a legal document which could be introduced as evidence when for instance a firm breaks up and the parties are seeking for civil actions and redress. A written contract is often preferred to a verbal agreement.
Covenant not to Compete-This is an important provision, which generally spells out terms and practices, which a Shareholder or business partner must abide by after separating from the company. Generally courts don’t like blanket limitations on individual rights even as it relates to business engagement. However when a “Covenant not to Compete” document is written and signed by all partners or shareholders, courts generally perceive them and legal documents and may indeed grant such documents the same powers afforded to business contracts generally.
Intentional Interference with Contract-This issue is also related to the question of Breach of Contract, in legal terms it is also known as the “Tort of Interference with Contractual Obligations”. To explain this interference, plaintiffs often look at what actions may have resulted when a wrongdoer’s action impacts the firm negatively. According to this line of thought, a previously signed contract was interfered with leading to an infringement of the original contractual obligation.
Shareholder Rights and Agreements-Since shareholders or joint Partners own a company, it is important that these issues be guarded as a way of upholding the interest of all investors. Break-ups in firms may have adverse consequences on the firm’s profitability or the firm’s chances to continue in business. It is always a better option when all interested parties live-up to their commitments and obligations as outlined in the contracts, but since we live in the real world, one can always expect things to change relating to business environment. In the area of company buyout, it is extremely important to consider the ultimate interest of the firm’s shareholders in buyout offers, be it leveraged buyout (LBO) or not. Many buyouts involve significant amount of debt assumption, it is ultimately crucial that when buyouts occur, that the terms for the buyout reflect what is in the best interest of the general shareholders.