When you are starting a new venture, you may not be thinking about the possibility of disagreements down the road. Unfortunately, disputes are common during the life of a business. It is important to be prepared by putting in place a strong shareholder or partnership agreement. If you are involved in a shareholder or partnership dispute, you should consult a skillful Atlanta business litigation lawyer at Parks, Chesin & Walbert.
Georgia shareholders in close corporations possess the same inspection rights as those in ordinary corporations. As a shareholder, you can make a written demand to inspect or copy a limited number of documents related to the corporation under Georgia Code section 14-2-1602. Items that you are entitled to inspect include articles of incorporation, bylaws, board or shareholder resolutions, resolutions of the board developing classes of shares, shareholders’ meeting minutes and records of actions taken without meetings, officers’ and directors’ names, and a corporation’s most recent yearly registration. People who meet additional standing requirements are entitled to inspect and copy even more documents. The corporation’s articles of incorporation or bylaws cannot restrict or stop you from exercising the inspection right, unless you own less than 2% of the outstanding shares.
Sometimes a shareholder dispute arises because directors or others in control act in a way that is fraudulent, oppressive, illegal, or unfairly prejudicial to a minority shareholder. The majority in a close corporation owe fiduciary duties to minority shareholders. This is because minority shareholders can be frozen out, and it is crucial for majority shareholders to act in good faith when managing the business.
In a close corporation, shareholders may retain an attorney to file a derivative lawsuit on behalf of the corporation for misconduct against the corporation. To file this type of lawsuit, you need to be able to fairly and adequately represent the interests of the corporation, and you need to have been a shareholder when the cause of action arose. Before suing, you will need to demand the appropriate relief and wait 90 days to give the corporation a chance to pursue litigation, unless the demand is rejected or irreparable harm would come to the corporation. The derivative proceedings can be stayed if a corporation starts investigating allegations.
When two or more people go into business together, a partnership may be formed. You do not need to file a document with the state when you create a partnership in Georgia, but this does not mean that you should handle the situation with any less care or formality than you would if you were creating a corporation. It is important to put in place a strong and clear partnership agreement that specifies each partner’s rights and obligations, as well as their duties to the business.
If there is no partnership agreement, Georgia statutes will apply. Under O.C.G.A. section 14-8-18, each partner must be repaid for their contributions and share equally in the profits and the surplus left after all of the liabilities are satisfied. The partnership is supposed to indemnify each partner with regard to payments made and personal liabilities reasonably incurred by them in the proper and ordinary conduct of its business or to preserve its business or property. A partner who makes payments or advances beyond the amount of capital that they agreed to contribute in the aid of the partnership is supposed to be paid interest from the date of the advance or payment.
Generally, each of the partners is jointly and severally liable for all of the debts, liabilities, and obligations of the partnership. Unless there is a contrary agreement among the partners, a partner in a limited liability partnership will not be individually liable for the debts, liabilities, and obligations that are chargeable to the partnership or a different partner simply because the partners are partners or participate in the limited liability partnership.
Shareholder and partnership disputes can undermine the proper functioning of a company. At Parks, Chesin & Walbert, we have earned a reputation for taking innovative approaches to complex legal problems. If you are seeking legal representation for a shareholder or partnership dispute, contact us. Our lawyers represent clients throughout Fulton, DeKalb, Gwinnett, Forsyth, and Glynn Counties. You can reach us at 404-873-8048 or via our online form.