The answer to this question is not always found in the world of corporate law, and even less so in the articles of association, whose function of adjusting the regulation of the company to the convenience of the shareholders has unfortunately been greatly limited by the registration classification based on “principles”. Perhaps this is one of the reasons for the proliferation of agreements between shareholders outside the articles of association.
Having made this introduction, we will list, as a reminder, those means that partners can use to resolve their conflicts, without having to resort to the courts.
In fact, the judicial route often constitutes a form of coercion to negotiate, because it is so easy to incur criminal liability in the corporate route (misappropriations, falsification of documents and corporate crimes) due to the trust that exists until it is broken, but which ultimately does not resolve anything. Because no sentence is capable of satisfying the latent problems in the conflict.
1.- The first measure I would say is to foresee that the conflict may occur.
The facts that may give rise to corporate conflict are very varied, as they depend on the type of business that each company carries out.
By way of example, I would say that they may arise from the decision-making process, the remuneration policy of the directors, the dividend distribution policy, the determination of the investment strategy, the way of obtaining new resources, the work to be carried out by each partner and the remuneration to be received by the same, the confusion of business and personal assets, the death or divorce of a partner, Caesarism or absolute management of the majority with contempt for the minority.
All these facts are multiplied when we are in the framework of family societies.
Considering that the conflict is latent, it is very convenient to agree, either in the statutes, or through agreements between partners, or in the case of family companies through protocols, how all the matters that may give rise to it will be regulated (but not resolved), since, from experience, most agreements tend to be verbal.
2.- The second measure is to provide civilized formulas to resolve conflicts.
In a company, there is constant negotiation, both with clients, suppliers and partners. Negotiation is a process of mutual communication, in which two or more parties that share some common interests and some other opposing interests, propose and discuss proposals in relation to reaching a possible agreement, the latter representing the simultaneous solution to the problems of those.
When this avenue has been exhausted, and as I have mentioned in other entries on this blog, mediation and arbitration are highly advisable as means of resolving conflicts, and can be especially useful in business matters, where the origin of the conflict is easy to identify as it has an essentially economic cause.
The clauses for submission to mediation or arbitration may be part of the statutes or outside of them. The difference between both measures is that the mediator tries to help the parties in conflict find a solution, while in arbitration, the parties submit the dispute to the decision of a third party, other than a judge.
3.- The departure of partners from the company.
Given that the conflict has arisen and it is difficult, if not impossible, to find a solution, the exit of the partners who do not feel connected to the business project must be facilitated in the least damaging way possible, both for them, who will try to recover the amount of their investment, and for the company, which may be deprived of the resources necessary for its correct operation.
The departure of partners can occur through different channels, which we will try to refer to, classifying them from most to least serious.
3.1.- Dissolution of the company.
Any company may be dissolved by a majority agreement of its shareholders, or by the occurrence of any of the circumstances provided for by law or by the bylaws, although it is rare to find specific causes for dissolution in the bylaws of companies.
By dissolving the company, it ceases to operate and begins a process through which it intends to pay the outstanding debts and distribute the surplus assets among the partners. This is the most radical measure and perhaps the least advisable.
3.2.- The separation and exclusion of any of the partners.
By separating a partner from motu proprio decides to leave the company, whereas through exclusion it is the company that forces a partner to leave the company. Both the withdrawal and the exclusion of partners are subject to a legal procedure, which can be adjusted to the needs of the company, by means of the bylaws or agreements between partners.
Both figures constitute a more efficient formula in economic terms than dissolution, in the sense that it avoids the paralysis of the company, the distribution of assets, and the allocation of assets obtained by each partner to new activities.
From a strictly legal point of view, the separation and exclusion of partners requires the existence of a cause and that the partner be reimbursed for the fair value of his investment, without prejudice to the possibility of agreeing penalties.
Specifically in the matter of separation of partners, it was widely discussed whether it was possible to establish a right of separation “ad nutum”, It is without cause, in limited liability companies, an issue that has finally been admitted by the Supreme Court and thus the Judgment of November 15, 2011 has definitively resolved the question of whether the statutory clauses that grant the partners of a limited company the right to separate without having to allege cause (ad nutum) are valid.
3.3.- The spin-off of the company and the reduction of capital.
These are means of executing the exit of partners, by means of an agreement. The spin-off is a very effective formula, although I anticipate that not all companies always have the possibility of doing so, since it consists of separating the branches of activity, and assigning them separately to each partner or group of partners.
To give a very simple but practical example, when a company runs two shops, it is very easy to split up, assigning one shop to each partner or group of partners. In any case, a split does not end all the problems between partners, and it is highly advisable to plan the development of each business at least for some time, so that they do not come into conflict over issues of customers, suppliers or mere competition.
4.- The purchase by one partner of another's share.
It is usually the most “casolano” remedy (homemade in Catalan) and also the most frequent in the case of companies with two partners or two family groups. One leaves the company by selling his share to the other partner.
In case of conflicts between two partners or two groups, it may be highly advisable to establish the clauses called “Russian roulette”, as a way of setting the target value.
Under this agreement, if one partner makes an offer to purchase the other's share, the latter may only avoid the option by offering a higher offer for the share of the one who first opted.
The assessment of society.
A problem common to all means of resolving conflicts between partners is the one related to the valuation of each partner's share in the company.
In the case of a dissolution procedure, as the purpose of the same is to obtain money that must be distributed, conflicts may arise when a partner tries to be awarded a specific asset, although this conflict may have an easier solution, since it is easier to value assets than companies.
When we look at the other cases, the problem of the valuation of each partner's share in the company depends on the valuation of the company itself, and unfortunately this is a very difficult issue to resolve.
The law speaks of the right to obtain a fair value, which is not much, in matters of separation, exclusion of partners and sale of company shares. The valuation of companies is nothing more than a matter of common sense and experience, without forgetting that in most small companies the value is closely linked to the personal contribution of each partner.
Company valuation methods can be classified into six large groups: balance sheet-based methods, results-based methods, mixed methods of the two above, cash flow discounting, value creation or alternative options.
From my experience I can say that when the idea of determining in advance the value of the company in the event of a conflict arises, I get chills, due to the fact that the economic situation can change from the moment the agreement is adopted to the moment it is executed, and also because sometimes it is done without a rigorous sense.
For this reason, I believe it is preferable, rather than agreeing on the method of valuation (for example, EBITDA by a multiplier), to determine the valuation procedure or exclude certain valuation procedures of the company, to use the one or those that best fit the characteristics of the company, all of this linked to the commitment to review the system with a certain periodicity, which may be annual or of longer duration.
