Viable businesses are typically engaged in multiple business areas. These can involve traditional commercial activity (selling goods, performing services, etc.) or government relations or intellectual property matters. If you operate a viable business, you will end up in a business dispute. That could be internal or external.
At the outset, we are not focused on business dispute resolution between a business and a customer/consumer. Those disputes raise a whole host of independent issues not within the scope of this article. Instead, this article is focused on partner-to-partner (i.e., internal) or business-to-business (i.e., external) dispute resolution. Internal business disputes can involve a disagreement springing from:
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Violating contracts — your business partner is breaching the terms of an agreement (e.g., employment, confidentiality, or non-compete agreement, or the governing documents of the business);
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Liability to third parties — it may be that a person was injured in a situation where you or another business may be liable.
The most important action you can take after a business dispute arises is to understand your legal footing. Without a clear view of the legal landscape, you may lack critical information when making decisions. To that end, at the first sign of trouble, you should consult with an attorney. Because business law involves a wide range of interrelated topics, a lawyer can help you map the legal issues and identify pathways forward. You can then better articulate your goal in the dispute, such as getting paid, requiring performance, instigating a buy-out, etc.
If a degree of cooperation still exists between you and the other side, you may consider negotiating a dispute settlement. You could also retain a third party to represent you. Delegating to a third party usually helps when tensions are elevated. Negotiation is good because it keeps costs down, can be relatively quick and results in mutually agreeable outcomes.
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Mediation is another option and involves retaining a mutually agreed third party who will use their skills to guide you and the other side to a settlement. When opting for mediation, we suggest you select a specialist familiar with the specifics of your business or industry. If the mediator is unfamiliar, they may ultimately hurt the mediation efforts. Mediation is usually cost-effective and swift. It also allows both parties to maintain some control over the process. Finally, mediation, like negotiation, requires consensus by both parties, which bolsters the strength of any mediated agreement.
Arbitration often results from a contract term and may be the exclusive remedy available to you and the other side. Sometimes, your relationship may be so toxic that negotiation or mediation will not function, and you need a more formal process. Arbitration can be that process. It involves a third-party arbitrator who is, in effect, a private judge. The arbitrator is frequently a specialist in the subject of the dispute and can understand the complexities. The benefits of arbitration are lower costs, a quicker time frame and almost always a final decision.
Litigation is the traditional choice to resolve commercial disputes. Often litigation is the only viable option due to the breakdown of the relationship between you and the other side. Litigation is also attractive because it allows for a full presentation of your case, requires adherence to rules of evidence and is enforced by a court judgment. In addition, if you lose, you still have appeal rights. On the negative side, litigation is slow, costly and often involves decision-makers (i.e., the judge or jury) who are not specialists in your business or industry.
Effective Ways To Solve Business Disputes
Jonathan Schmidt is the principal attorney with 303 Legal, P.C. He practices in the areas of business and litigation. He can be contacted at jonathan@303.legal or www.303.legal.Partnership disputes are not uncommon, even for the closest of friends. Small disagreements can suddenly blow up into major disputes that leave the business’ future in doubt.
Fortunately, business disputes can be avoided and resolved. However, it will take some wise thinking, maturity and potentially some investment of money and time. There are several resolutions options available for those who get into partnership disputes:
Mediation is a carefully structured process where a neutral, third-party mediator helps business owners find a resolution that allows them to remain in business together.
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Mediators will use negation and communication techniques to help improve the way things are currently run, allowing the partnership to have a stronger future.
Mediation generally requires both partners to participate actively. So if one of you is too stubborn to look to improve, this option might lead to the same roadblocks.
Written agreements can be a great way to structure your business relationship in a way that helps avoid disputes. You can deploy written agreements at any time, but using proactive provisions from the start is advised. Depending on your type of business, you may need an operating agreement or a partnership agreement.
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Ensure that all written documents are as clear and detailed as possible. If you’re not careful with that, you can end up doing further damage as there will be such uncertainty over what is expected of one enough.
Get each other on the same page for all possible scenarios and have the document signed off. When future disputes arise, you can refer back to your written agreements.
When forming a partnership agreement, you can establish buyout agreements that detail the terms and conditions for if someone wants to buy out a partner or shareholder.
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Buyouts can be an alternative dispute resolution if partners genuinely feel they can no longer work together but want the business to continue.
If there is a partnership dispute, you should dedicate time to discuss it. Juggling conversations and negotiations while your head is focused on other tasks will only result in further tension.
Ensure you and your business partner focus on solutions rather than the problem. Your goal is not to win the argument but to find a solution that helps the business move forward. Playing the blame game here never works.
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Another alternative dispute resolution is to sell out to new owners. If the business has a future, but there is a clear desire for the partnership to end, then you may both benefit from a sell-out.
In partnership agreements where interests are not equal, the majority owner can ‘freeze out’ minatory owners with a merger with a newly created company owned by the majority owner.
In the worst-case scenario that both the business and partnership aren’t salvageable, then the dissolution of the corporate entity may be chosen instead.
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If financial despair has led to your partnership dispute and liabilities of your business exceed its assets, then it may be worth considering filing bankruptcy.
If a partnership dispute arises due to misconduct, legal action may be required. For example, misappropriation of assets, fraud, breaches of duties and irresponsible behavior can result in lawsuits between partners.
By contacting an experienced business attorney, you can use litigation to take action against the violating individual to reward financial damages to the damaged parties.
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Caitlin Szematowicz at Battaglia, Ross, Dicus & McQuaid, P.A. has extensive experience that can help you in every step, from document drafting to litigation.
At Battaglia, Ross, Dicus & McQuaid, P.A., we represent clients from St. Petersburg, Florida, and throughout the surrounding areas, including Clearwater, Largo, Pinellas Park, Highpoint, Safety Harbor, Dunedin, Oldsmar, Tampa, Brandon, Bradenton, Riverview, Sarasota and throughout Pinellas County.
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