I am a 10% partner in a business. My partner no longer...

I am a 10% partner in a business. My partner no longer puts in real effort and rarely comes into the office. What can I do?

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“Your partner is the majority shareholder and as such is the owner of the business. The business owner can come to work when and if they want to as the Basic Conditions of Employment, such as hours worked, do not apply to business owners. Even though you own 10%, because the share holding is so small, you are technically an employee,” says Ask Entrepreneurs’ legal adviser, Michelle Venter.

The best option

“Try the reasonable approach. Call a meeting, face-to-face, and discuss your concerns with your partner and find a solution that is acceptable to both parties”, advises Venter.

Mediation and arbitration

If this fails, mediation could be the next option. In this forum, the dispute is handled privately, behind closed doors. An impartial third party will hear the issues in question from each side’s perspective. He or she will then work with both groups to find possible solutions and/or compromise.

However, mediation only works if both parties are genuinely sincere in trying to work out their differences. A mediation agreement is binding. Once both parties agree a contract can be drawn up, signed, and will be legally binding. It is cheaper than paying attorney fees, court costs, and deposition fees.

If you cannot reach an amicable solution through medication, an attorney who will act as an outside arbitrator can be appointed to try to break the stalemate. You would need to consult a professional dispute resolution law firm.

Easy solution

“If you are very unhappy with the situation, the easiest thing to do is to ask your partner to buy your shareholding, and you can move on,” recommends Venter.

It isn’t easy for a minority shareholder to buy out a majority shareholder

If you can show that there are performance issues that are affect the profitability of the business because owner does not show any interest in the business, you may be able to buy out the majority partner. If this were the case, you would have to raise the money for the buy out.

  • You could take a loan and buy her out
  • You could find a new partner and between you buy her out.

Does a partnership agreement exist?

However, a partnership is much easier to get into than out of. You need to review the partnership agreement to understand what rights you have. However, you may need to consult with a lawyer to find out what your rights are in terms of the partnership agreement. If there isn’t a partnership agreement then you would definitely require legal guidance in terms of how to proceed.

Look out for a Non-compete clause

Did you sign a non-compete clause? The non-compete agreement ensures that upon the termination of the employment period, the former employee will not engage in activities that place him or her in direct competition with their former employer.

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