The time may come for your business to vote out one of its partners, and the NBA's recent scandal may serve as a good lesson.
Donald Sterling, the Los Angeles Clippers owner who has been banned for life and fined millions over racist comments, will likely be forced to sell his team by the NBA, reports NBC Sports.
Take a lesson from the NBA: Make sure your business is prepared to vote out a partner.
NBA Constitution Reveals Ambiguities
Like most large businesses, the National Basketball Association (NBA) has a legal document governing the behavior and treatment of players and owners. The NBA handles these issues in its constitution and bylaws, which includes a procedure for terminating ownership and membership.
The NBA's bylaws state that owners may be terminated by a three-fourths vote of existing owners if they:
- Willfully violate the constitution or bylaws;
- Fail to pay dues on time;
- Fail to fulfill contractual obligations to NBA, players, or associated third parties;
- Are involved in gambling or "fixing" games;
- Lie on their membership applications; or
- Fail to get their teams to a game.
The NBA will likely argue that while the constitution does not include a "morality clause" for owners, Sterling's comments did interfere with the NBA's business and contracts with sponsors. But the ambiguity in the constitution could lead to a drawn-out legal battle between Sterling and the NBA.
Ways to Ensure an Easier Vote-Out
If you've chosen a partnership as your business' structure, you'll also want to make sure you have an uncomplicated way to vote out partners.
You can start with a partnership agreement from a pre-paid legal service, but most sample forms will not include the kind of language necessary to protect your business from partner termination troubles.
That's why it pays off to have an experienced business organizations attorney discuss the following clauses with you:
- Dispute resolution. This can define how to resolve disagreements between two or more business partners, such as by requiring mediation.
- Termination. You may want to list the reasons that would make a partner eligible for termination and describe the voting procedure -- including what to do in event of a tie.
- Morality clause. Make it so that partners can be found in breach of your agreement and eligible for termination if they misbehave -- even if the conduct isn't criminal.
The more exacting you are in your business' bylaws, the less time and money you'll likely have to spend defending a partner's ouster in court.
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Related Resources:
- Sterling's ouster would lead to uncertain future (The Associated Press)
- End a Biz Partnership Without Ending Your Business (FindLaw's Free Enterprise)
- How To Protect Yourself In a Business Partnership (FindLaw's Free Enterprise)
- 5 Key Steps in Dissolving a Partnership (FindLaw's Free Enterprise)
