Resolving Business Disputes (How to Separate from Your Business Partner)
When business owners disagree, there are various ways to attempt to try to resolve the dispute.
The resolution often depends on the nature of the dispute.
In some cases, it makes the most sense to resolve the dispute quickly and quietly, and for the business to continue operating with as little disruption as possible.
In others, the business relationship cannot be salvaged.
Regardless of the nature of the business dispute, there are some common methods of resolving disagreements between business owners. Some are more expensive than others; some are more public than others. A good business attorney can help you decide which methods are best for you, and will help move you forward through the dispute facing your business.
Methods of Dispute Resolution
Many times the methods of resolving a business dispute overlap, as a failed negotiation may escalate to litigation, then the case is sent to mediation or an arbitration clause is triggered.
Here, we discuss various methods of resolving a business dispute and the different remedies that might be available.
The least expensive and most private form of business dispute resolution is a negotiation. The disputing parties, often with their lawyers, may agree on how to resolve the disagreement, and the matter is closed. An owner or owners might leave the business with an agreed upon compensation package, and the remaining business owners carry on.
Even if a lawsuit has been filed or the parties are scheduled for an arbitration, negotiations are almost always occurring “behind the scenes” throughout any dispute resolution process.
When an agreement is reached, agreement is usually then formalized through a contract.
Mediation is a form of alternative dispute resolution that is often used to resolve a dispute without court intervention. Other times mediation will be proposed after a lawsuit has been filed as a method of resolving the dispute without the time and expense of going to trial.
A mediator does not have the authority to make binding decisions. Instead, a mediator works with both sides, sometimes independently and other times in a group, to help the parties explore alternatives to resolve the dispute.
The process of mediation is confidential, meaning that both the process as well as the results are usually not shared, or at least not all the details are shared in public. In addition, the mediator is bound to respect the confidentiality of the parties’ and will not share details with about discussions without the party’s consent.
In an arbitration the dispute is presented to an impartial third party or a panel of impartial arbitrators who evaluate both sides and make a decision.
In some cases arbitration is binding, while in others it is not.
The arbitrator may ask to review relevant documents, and may hear from representatives from both sides. The formal rules of evidence do not apply, and there is no formal discovery process.
At the arbitration both sides will have an opportunity to present a summary of their case. The process is usually shorter and less expensive than litigation.
Many business contracts include mandatory arbitration clauses.
Litigation is the formal process of taking a case to court. It begins with the filing of a lawsuit. The parties exchange information in a lengthy process called discovery, depositions are taken, and the case is scheduled for trial.
As the parties learn about the relative strengths and weaknesses of their respective positions, the lawyers and the judge may be exploring ways of resolving the case without going through a full-fledged trial. The case may be sent to mediation or arbitration and, if successful, the case will be resolved. If not, the case will go to trial as scheduled. Negotiations are often on-going.
A trial is public, and is the least private and most expensive way of resolving a business dispute. In some cases, it is the only way to resolve a dispute among business owners.
Remedies for Resolving a Business Dispute
When business owners have fundamental disagreements over the direction of the business and the relationship cannot be salvaged, there are two basic choices: either one partner leaves and the business carries on, or the business is dissolved and ceases operations.
Two common ways to resolve a business dispute are a business divorce, also known as a dissolution, and an accounting.
Business Divorce / Dissolution
A business divorce, formally known as a dissolution, is the process of dividing the entity through which the partners do business.
A properly drafted operating agreement should include instructions for the dissolution of the business. But practically speaking business owners will look for loopholes in the buy-sell agreement, make claims of financial irregularities, try to bully one another into an agreement, or take actions to try to destabilize relationships with third parties.
To separate the business all assets and liabilities must be addressed, and the partners must come to an agreement on how to move forward.
Tallying the assets and liabilities is, unsurprisingly, often a contentious issue.
If one business partner believes that another business partner has wrongfully used business assets, failed to seek the approval of other business partners when making decisions on behalf of the company, or is not making decisions in the best interests of the company, one partner might ask for an accounting.
An accounting involves more than simply turning over the financial records of the business. It is much more in-depth and involves a comprehensive review of all business transactions, as well as schedules and back-up documentation of income and expenses of the business. In a business accounting, the court makes a determination of who owes what to whom, and how much is owed.
Fremstad Law - Moving Your Forward Through a Business Dispute
If your business is facing the disruption and uncertainty caused by a dispute among business owners, contact Fremstad Law today. Our business lawyers have extensive experience in finding creative ways to avoid costly and time-consuming litigation so that you can focus on moving forward from your business owner dispute.