Landing Safely When it Starts to Crumble

A personal divorce is hardly anyone’s idea of a good time. The same thing holds true for a falling out between business owners. It can result in bad blood between the business owners, a substantial financial loss for the business and even failure of the business if they’re not careful. If you have a disagreement with another owner in your business that is affecting your business, you have fallen out of the honeymoon phase with another owner in your business or you and the other owner are already headed to Splitsville, this article can shed some light on the options that you have.

Using Your Map

Certain provisions may already be included in your business’ governing documents that you signed that offer one or more ways to move forward with your business when there’s a dispute between the owners. Depending on the issue at hand, the solution can be as simple as a vote or a buy-out of an owner or as difficult as a removal of one of the owners or dissolution of the business. Unfortunately, these provisions may not benefit you if you are an owner who owns a minority of the ownership interests in the business. Exercising the rights provided in these provisions may also still require some negotiation with the other business owners, but if your governing documents can solve the issue, this is the quickest option.

Your governing documents may further set forth the steps you need or have to take to move forward with your dispute with another owner in your business. These may be form provisions or unique provisions designed specifically for the business and the relationship among the owners. These include voting and dispute resolution provisions that may require negotiation, mediation and arbitration. Dispute resolution provisions are generally enforceable, but this is not necessarily the case all of the time.       

Talk it Out

When you have a dispute with another owner in your business, most of the time the best first step is to talk it out. Are the issues resolvable with some honesty and communication or do they require something more? Sometimes negotiating may be required instead of just a simple conversation to come to final terms on the problems causing the breakdown in the relationship. This can lead to a resolution that leaves the business and the ownership both intact, or it could result in a decision to dissolve the relationship or the business itself. Successfully negotiating with other business owners in your business is often the fastest and most inexpensive way to resolve an issue.

Be aware before negotiating with another owner that crucial factors during any negotiation are the current relationship among the owners, the amount of power each owner has and the current state of the business. When seeking to successfully negotiate an issue with business owners, first stop and ask yourself (1) whether your duties and your owners’ duties to the business are being, or have been, fulfilled, (2) what the value of the business is and how the current issues are affecting the business and (3) reviewing, or having someone else review, loans, contracts and governing documents that bind you, the other owners and the business. These are important and crucial factors to a negotiation, as they can be driving factors is settling the items at issue and reaching a result that is best for the business. However, be prepared for negotiation to fail and to have to look to the governing documents of your business and possibly mediation, arbitration or the courts to resolve your dispute.

When Third Party Involvement is Needed

At the end of the day, when talking it out has failed and the governing documents alone don’t resolve the dispute, sometimes the only way to resolve a dispute is with the involvement of a third party. An owner can seek assistance from the courts, mediators and arbitrators. Of these means, mediation is likely to be the least expensive and the method that ends with the least amount of hard feelings; however, mediation has its own set of disadvantages such as potential for inexperience and bias of mediators. Arbitration is generally the next best alternative, but unless your documents are specific about what rules apply to arbitrations, you could end up paying as much as you would with litigation and could face much more bias than you would in court. Courts are generally the least desirable alternative  because when a dispute reaches the courtroom, it often gets ugly, resulting in even heavier tension and bad blood among the owners, tends to take the most valuable time away from the business and generally is much more expensive than the other alternatives.

When you realize you may need to result to third party involvement, it is crucial to check your governing documents. They often set forth where a mediation,  arbitration, or even a negotiation, and the filing of any court case must take place. They also often set forth the rules that will govern the dispute, what state’s laws will govern the dispute and set forth how a mediator or arbitrator must be chosen. You could also be required to use a specific method, set of methods, or order in proceeding with your dispute. As an example, many operating agreements for limited liability companies contain arbitration clauses and mediation clauses and specify what order in which they must take place. Some even completely restrict matters from being brought in court and require that a decision in arbitration is final. Failure to look into this could result in substantial loss of money if you choose a method or order that conflicts with your business’ governing documents.

At the End of the Day

Generally, the process of resolving a serious dispute in a business can be a real headache for business owners regardless of whether they are negotiating through terms already spelled out and agreed to or are fighting their way out in the courts. The legal professionals at Dodson Legal Group are at your service to help make the process easier and advise you on which method or methods are best in your situation. If you feel stuck and are considering removing an owner from your business, dissolving or exiting your business, or looking to find alternatives in moving forward with your business due to internal disputes between owners, it is an opportune time to move forward and contact one of the professionals at Dodson Legal Group toll free at 844-4DODSON to help guide you in the best direction for you and your interests.