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How to resolve your business partnership dispute in China

When two or more people go into business together, they have effectively formed a “partnership”.  Technically, the terms “partner” or “partnership” are usually limited to an entity known as general partnership or limited partnership, but for simplification we will use them to describe shareholders in a closely held corporation, or members in a small Limited Liability Company (LLC).

The worst thing partners can do is establish a business or enter into some form of joint venture without a clear agreement what their rights and responsibilities are to each other.  Better yet, this agreement should be reduced to writing to avoid any ambiguities or misunderstandings about these responsibilities.

With or without a written partnership agreement, disputes do occur.  When they do, each partner needs effective legal representation to protect their interests.  If an informal resolution cannot be reached, litigation or alternative dispute resolution (ADR) may become necessary.  While litigation is never pretty, the consequences of not enforcing your rights may be far worse.  Say, for example, you are a minority shareholder in a closely held corporation.  Your partners (the majority shareholders) refuse to let you view the company’s financial reports.  How can you possibly know whether or not you are getting your rightful share of the company’s profits?  Or, if you do see the financials, they may show a lack of profits but also show the majority shareholder is taking out an exorbitant salary.  The cost of doing nothing may be tens or hundreds of thousands of dollars of lost profits to you over the years.

If you are the majority partner and have minority partners, watch out.  Your status as a partner (or officer or director in a corporation) creates numerous fiduciary duties for you.  If certain financial disclosures are not made, or if you are taking a salary (or other benefits) that your partners deem excessive, they can bring a suit against you for a breach of those fiduciary duties.

Other partnership disputes arise when one partner engages in competing activities with the partnership, or when the company needs money and only one partner has the ability to fund it.  Should you ever find yourself in a position where you or your partners have a dispute, you should immediately seek legal advice to protect your interests.  We can resolve many disputes informally and inexpensively, but when litigation or ADR is necessary, we will zealously advocate your position to get you the best possible results.  An initial consultation on these matters can be done without cost or obligation to you.

Disputes between partners and members of LLPs are invariably highly personal, with reputations and careers often at stake. The team at Pannone are very sensitive to these issues whilst providing robust, practical and commercial advice.
We regularly advise both remaining and departing partners and members in professional partnerships and LLPs including accountants, surveyors and solicitors.  Within the team, we also have niche experience of disputes involving medical practitioner partnerships, particularly dentists and GPs. This is an area in which we are seeing a steady increase in the number of disputes which often require careful and considered liaison with the Primary Care Trusts.

Disputes which often arise involve the rights and liabilities of the parties following a partner’s or member’s retirement or expulsion from the partnership or LLP or the dissolution or winding-up of the organisation.  We use mediation as a particularly effective tool to achieve sensible and cost effective resolutions as early as possible. Mediation has the added benefit of being a confidential process.  However, if court action is needed, we take swift and decisive action.  Our team has a wealth of litigation experience.

Two partners in our team are members of the Association of Partnership Practitioners, a multi-disciplinary organisation of specialist practitioners in partnership law.  We are also highly ranked as a regional firm for  partnership work by The Chambers Guide to the Legal Profession 2011.

We also work with specialists in our Corporate and Commercial teams to draft, update and revise existing partnership agreements and/or settlement agreements ensuring a complete service to clients in relation to drafting agreements and partnership law.

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.