The Limitations of Business Agreements in Court

When going into business with someone else, it’s always a good idea to make sure you have all the terms of your agreement in writing in case a dispute arises later on down the road. In most instances, a formal business contract (or even an informal agreement signed by both parties) can prevent a lot of squabbling in court, but even with a tight contract, there’s no guarantee it will be followed to the letter, even if it’s brought before a judge.

Business owners tend to run into this problem when there’s a dispute over who owns (and therefore controls) how much of the company. These disagreements are usually he-said/she-said arguments with little or no evidence supporting either side, leaving judges to try and sort through various claims and accusations. As if that weren’t bad enough, these disputes tend to arise during times of crisis for the business, so the judge is usually forced to make a decision quickly, in which case, they are often urged to prioritize fairness and efficiency over the legal letter of the contract.

Whether you’re currently headed into court with your business partner, or you’re just starting a business with someone and you want to be aware of the potential pitfalls later on down the road, here are some surprises you might face:

Your Company Procedures Might Not Matter

Despite all the hours you and your lawyers spent on details like meeting notices for shareholders and/or directors, quorums, waivers, resolutions, etc., a judge might decide to ignore all of them in favor of the “bigger picture”. Judges are usually more concerned with the actions that were taken by the parties that brought them before the court in the first place, and sometimes that focus can work in your favor, while other times it can work against you.

Who Has Control?

Majority shareholders usually hold the most influence in a company, but if a judge decides the majority shareholders abused their power by squeezing out minority shareholders and/or shareholder-employees, the judge can overrule past decisions made by the majority shareholders and even grant minority shareholders rights to damages. In some extreme cases, judges have even been known to appoint someone to operate the company, and there’s no guarantee you’ll have any say in who the judge will choose to put in control.

Share Prices are Subject to Change

Even if you have an agreement laying out the terms and prices for one person to buy out another shareholder or co-owner of the business, a judge might decide they don’t think the pricing formula is fair to both parties, at which point they can set a hearing for both parties to present their case as to why they think company shares should be set at a certain price.

Check Your State Laws

Depending on the state in which you live and do business, your judges might have the legal power to do anything from removing a director or officer and appointing a new one, to dissolving the company entirely.

Tighten Your LLC Agreements

Judges generally tend to go one of two ways when it comes to operating agreements for limited liability corporations. If they find the agreement to be detailed and tailored to the situation that brought the owners before the court in the first place, judges will usually abide by (and enforce) the terms of the LLC operating agreement. If, on the other hand, the judge finds that the document was not well drafted, or is thin, they can decide to scrap the whole thing and make up their own rules as they go along.

Business Disputes

With indisputable convenience for clients, we cover Chicagoland and beyond with offices in Chicago, Elmhurst and Wilmette. Keep in mind that Lubin Austermuehle also assists businesses and business owners who are accused or victims of shareholder oppression.

Act Now to Reach Experienced Partnership Dispute Lawyers

At Lubin Austermuehle, we focus on relationships and are driven by results. When it comes to unraveling complex business disputes, we are proud of our track record of outright victories in court or substantial and lucrative settlements for our valued clients. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. We serve clients throughout Illinois and the Chicagoland area. You can contact us online here or call us at 630-333-0333.

Client Reviews
I was referred to Peter Lubin from someone in the car business to handle a law suit. From the moment I made the appointment Peter and his staff were outstanding. This wasn't an easy case, most lawyers had turned me down. However, Peter took the time to meet with me and review everything. He took on the case, and constantly communicated with me about updates and case information. We beat this non-compete agreement case in record time. I would use him again and recommend him to my closest family and friends. 5 stars is not enough to thank him for his service. Sebastian R.
I worked on two occasions with Peter Lubin and his staff. They took their time with me and discussed each and every item in detail. The group makes you feel like you are part of the family and not just another hourly charge. I recommend Peter to anyone who asks me for a referral. If you are looking for a top notch attorney at a reasonable rate, look no further than Lubin Austermuehle. Kurt A.
Excellent law firm. My case was a complicated arbitration dispute from another state. Was handled with utmost professionalism and decency. Mr. Peter Lubin was able to successfully resolve the case on my behalf and got me a very favorable settlement. Would recommend to anyone looking for a serious law firm. Great staff and great lawyers! Albey L.
I have known Peter Lubin for over 30 years. He has represented me on occasion with sound legal advice. He is a shrewd and tough negotiator leading to positive outcomes and averting prolonged legal hassles in court. He comes from a family with a legal pedigree and deep roots in Chicago's top legal community. You want him on your case. You need him on your opponents case. He won't stop fighting until he wins. Christopher G.
Peter was really nice and helpful when I came to him with an initial question about a non-compete. Would definitely reach out again, recommended to everyone. Johannes B.