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Family Business Disputes- How to Resolve Them

Eric Davis
Family Business Disputes- How to Resolve Them

Family businesses have challenges. It's often difficult to keep personal feelings and business opinions separate when there's a disagreement. This guide will look at the issues that arise in family business disputes and how to resolve them.

Typical Issues with Family-Owned Businesses

There will be differences of opinion at the board level in any business, but differences in family-run businesses can sometimes blur the line between business and personal. That is different from saying that all family-run businesses should be run like Ewing Oil (for Dallas fans), but it is prudent to plan the decision-making process.

Quite often, the parents establish the company in family-run businesses, and their children come through to take over the reins. And this is not the case that the children will be equally involved or that they will show interest in the business at the same time. These varying dynamics can sometimes create additional challenges for decision-making.

Problems at the board level may arise due to the owners' competing interests. For example, as they near retirement, more senior shareholders may be less willing to take risks. In contrast, newer members may push for business risk to grow the business differently. That creates a base of dispute.

How to Avoid a Family Business Conflict

The good news is that there are ways to reduce, if not eliminate, the risk of a family business dispute. These are some examples:

• It is critical to have a well-drafted, comprehensive Shareholder Agreement.

The Shareholder Agreement should be read in conjunction with the equally well-written Articles of Association, which are necessary for the formation of a company. However, having a solid agreement in place is key to the successful running of any business with shareholders.

• Another way to avoid a dispute is to ensure that everyone's roles within the company are clearly and explicitly defined. If a family member is a shareholder or a director, you should clearly define their role in the company through an employment contract or a director's service agreement.

• If the business is a partnership, it is recommended that a Partnership Agreement be drafted that addresses the critical issues of how the individuals will collaborate, how profits will be shared, and what happens in the event of partner expulsion or retirement.

What Happens If A Disagreement Cannot Be Settled?

If the parties to a dispute reach an impasse and cannot reach a key decision, they may consider forms of alternative dispute resolution rather than court proceedings. Mediation allows the parties to a dispute to meet with a neutral third-party mediator to air any concerns and see if there is a way to reach an agreement. A mediator can be a lawyer, but this is not always the case.

Mediation has the following advantages:

• A forum where everyone can express themselves openly and honestly without jeopardizing their position in open court proceedings;

• The guidance of an experienced mediator who will promote resolution while keeping negotiations calm and rational;

• It is less expensive and less time-consuming than lengthy court proceedings;

• You may discover that there are underlying reasons for the conflict that have nothing to do with the business, which allows you to resolve them.

Most importantly, once the dispute has been resolved, you should work together to develop some goals and objectives for the company to avoid similar future disagreements.

Our Ogden Divorce Attorney has extensive experience advising family-owned businesses. For more information, please contact us or fill out our contact form, and we will respond as soon as possible.

Eric Davis
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