Disputes Between Business Owners & Relevant Legal Considerations
While business disputes may arise in a variety of contexts, owner disputes are often particularly common among small or closely held entities. Individuals who originally agreed to go into business together may find themselves differing on management approaches or eventual decisions about the future path of the company. Given the significant investments made by business owners, these types of disputes are often particularly contentious and can involve both typical breach of contract claims and more complicated issues of corporate governance and fiduciary duties.
Types of Owner Disputes That Often Arise
Disputes between business owners often arise in the context of one owner feeling that another owner has not adequately represented the interests of all parties in making decisions on behalf of the corporation. For instance, it may be alleged that an owner engaged in self-dealing by orchestrating partnerships that were particularly advantageous for his or her personal finances, or by failing to adequately seek the counsel and input of all concerned members. Owners may also allege that duties were violated when one owner was kept in the dark by other owners, or intentionally “frozen out” of the process of owning and managing the company. In larger corporations with a greater number of shareholders, minority shareholders may allege that they are being oppressed and excluded by more influential majority shareholders. In extreme circumstances, one owner may allege that another has engaged in criminal activity, such as stealing from the company or falsifying books and records.
Addressing Owner Disputes
In larger companies, the first step in an owner dispute may be an internal investigation orchestrated by the company itself. These types of investigations can help to keep the company out of the courtroom and avoid the extensive costs of litigation. However, smaller corporations may not have the resources or ability to engage in a full-scale internal investigation, or the organization of the company may be such that an impartial investigation is simply impossible. In these instances, many owners will proceed to litigation, hoping to discover the full details of another’s mismanagement through the process of discovery and trial. Since litigation can be expensive, business owners dealing with more minor disputes may wish to utilize small claims courts proceedings for issues such as the payment of outstanding debts. Small claims courts do not allow lawyers to be present, thereby avoiding the expense of representation. However, most small claims courts place a cap on the amount of damages that can be recovered in these settings, so they are not ideal for larger disputes when an owner’s investment in the company is at stake.
Mediation may also be beneficial because it is a more private way to resolve disputes than litigation in court.
While disputes between owners can be very emotional and contentious, there is often a shared interest in retaining the value of the company at the heart of the dispute, and not seeing years or decades of hard effort gone to waste. For this reason, owner disputes can be a good place to consider the benefits of mediation. In a mediation setting, both parties can work to find a middle ground that is mutually agreeable, while also being able to fully explain their complaint and the injustices they feel they have faced. This can give owners the closure that they seek, while avoiding a prolonged experience in the courtroom that can decimate the resources and future of the business at issue.