Starting a business can be very exciting. You make plans for a bright future. You’re optimistic not only about how well the business will run, but how profitable it will be too. Plans and dreams are great, but it’s preparation and work that may help you avoid conflict with co-owners. If it happens there are things you can do to protect yourself.
Whether you formed a partnership, limited liability corporation, partnership or limited liability partnership, a big step to manage expectations and make sure everyone knows their responsibilities is an effective partnership agreement, LLC operating agreement or shareholders agreement.
If despite those documents owners are at a stalemate or relationships have simply broken down it may be time for disputes to be resolved or for people to go their own ways. How this takes place should be spelled out in the agreement which should be tailored to the needs of the business and the owners. If there is no such agreement state statutes cover these topics in a “one size fits all” approach that may or may not work very well.
If things are going poorly you may want the other owners out, they may want you out, or both. It’s possible that the company’s not doing well and everyone’s miserable. Maybe it’s going very well and some are trying to get more of their fair share of the profits.
If there is an agreement,
- Who has the ability to make what decisions for the business?
- Has one or more parties over-stepped their bounds?
- Have obligations been met?
- If the agreement has been breached, are remedies spelled out in it?
- How are disagreement supposed to be resolved?
- If the parties can’t do it themselves, must a mediator or arbitrator be used?
- If the disagreement goes to court, must it be filed in a particular place using the laws of a specified state?
- Does the agreement state attorney’s fees and costs of litigation can be awarded to the prevailing party?
- Can a judge or arbitrator award attorney’s fees?
If you’ve reached the point of no return and feel somebody needs to leave,
- Try to avoid litigation. It’s expensive, time consuming, energy intensive, emotional and a distraction from running the business. If costs and attorney’s fees can be awarded to the prevailing party, it ups the ante considerably. Trials are unpredictable and outcomes uncertain. How much do you like uncertainty?
- If you do end up in litigation it may be for any number of reasons. You may be sued. You may need to get a restraining order to prevent another owner from using company assets for personal gain or to start another business.
- Even though avoiding lawsuits has many benefits, if there will be lawsuits there are benefits to being the plaintiff and not waiting to be sued. If you file first, you can try to set the narrative of the conflict which is that you are the good guy. You also have the first choice as to where the lawsuit will be filed.
If you have any questions about resolving serious business disputes or find yourself involved in one, contact our office so we can talk about your situation, how an agreement and the law may apply, what steps you should take and how you can protect your legal rights and interests.