Disagreements are unavoidable, especially in business. You and your business partners may be able to work through rough patches, make amends, and continue moving the business forward with as little disruption to operations as possible. Other times, the relationship has deteriorated so much that it cannot be salvaged.
When a business relationship cannot be salvaged, it is wise to enlist the help of an experienced business attorney who can offer advice and guide you to a successful resolution that will preserve business assets and allow all parties to move forward.
The Importance of an Operating Agreement
The best advice, of course, is to plan for disputes before they occur so that you have a framework for resolving a business dispute. The process for resolving a business dispute should be clearly laid out in the business operating agreement.
A well-drafted operating agreement sets forth the rights and responsibilities of all business owners. In many cases, the operating agreement itself will help resolve a business dispute by identifying who is responsible for what, and providing a remedy if someone is not holding up their end of the bargain.
The operating agreement can also specify the process for resolving a dispute, such as requiring mediation or arbitration.
In some cases, litigation may be the only available option for resolving a business dispute.
Methods of Resolving Business Disputes
Regardless of the nature of the business dispute, there are four basic ways a business dispute can be resolved. These dispute resolution methods often overlap, as the parties may begin with negotiation, move to mediation, arbitration, or litigation, and finally resolve their difference short of trial through settlement discussions.
Negotiation
Negotiation is the least expensive and most private way to resolve a business dispute. The parties to the dispute, often with the assistance of their lawyers, work to find an agreement on how to resolve the dispute. Once an agreement is reached, the matter is closed and the parties move forward consistent with the terms of the agreement.
Mediation
Mediation involves a third-party mediator who meets with both sides collectively, then speaks with each party individually to uncover areas of agreement and move the parties towards a resolution. A mediator cannot make binding decisions but acts as a guide to assist the parties in reaching a successful resolution.
Mediation is confidential, and both the process and the result are not shared publicly. During the mediation, the mediator will respect both parties’ privacy and will not discuss information that was shared in confidence without the party’s consent.
Arbitration
Many operating agreements include an arbitration clause that requires the disputing parties submit to arbitration.
Arbitration can be binding, in which case the arbitrator’s decision is final, or non-binding, in which case the arbitrator’s decision works more as a suggestion.
During the arbitration, the arbitrator may ask to review relevant documents, and each party will have an opportunity to state their case and call witnesses on their behalf. The rules of evidence are relaxed, and the process is usually shorter and less expensive than litigation.
Litigation
Litigation is the formal process of taking a dispute to court. One party files a lawsuit, the other party responds, the parties exchange information in a lengthy process called discovery, and the case is scheduled for trial.
Through discovery, the parties learn about the relative strengths and weaknesses of their position. Behind the scenes, lawyers and judges will work to bring the parties closer to resolution without resorting to a full-fledged trial. Even after a lawsuit is filed, the parties will still engage in negotiation through discussions or may work with a mediator to try to resolve the dispute.
If the parties cannot resolve their dispute, the case will go to trial, where a judge or jury will hear it. Litigation is the most expensive, most public way to resolve a business dispute, and often takes the longest.
Resolutions to a Business Dispute
Regardless of which process is employed, once a business relationship is damaged beyond repair, there are two general ways the dispute will be resolved: either one party leaves and the business carries on, or the business is dissolved and ceases operations.
When a business is dissolved, the business entity ceases to exist and business assets are divided among the owners, after payment of all company debts. A well-drafted operating agreement should include instructions on how to dissolve the business, including how assets are valued and who gets what.
An accounting may be required to establish the value of business assets and address any irregularities in how the business was being run. An accounting involves an in-depth analysis of the business’s financial records. A court may be asked to determine who owes what to whom, and how much is owed.
Contact RKPT for Assistance Resolving Your Business Disputes
A dispute among business owners causes uncertainty and can jeopardize both the long-term future of the business as well as its short-term financial health.
If you are in the midst of a business dispute or see one looming on the horizon, be proactive and contact the experienced business lawyers at RKPT today.
RKPT has been serving clients throughout the Midwest and Florida since 1965. Our lawyers strive to understand our client’s unique concerns and develop creative and cost-effective strategies to help solve their problems.
To learn more, contact us today to schedule a confidential consultation to discuss your situation and how we can help.
