10 Things Business Owners Should Consider When It Comes to Disputes

Businesses often have more than one owner. In a partnership, the owners are called partners; in a Limited Liability Company (LLC), members; and in a corporation, shareholders. This blog generally relates to those businesses with relatively few owners, regardless of the legal structure (partnership, LLC, or corporation). When disputes arise between or among owners, the owners may hire counsel and expensive legal proceedings begin and continue, diverting time, attention, and money from running the business.

Therefore, the best course is to try to prevent business disputes from erupting in the first place and plan how to deal with them beforehand. Here are some general suggestions to avoid disputes from festering or dealing with them after they do:

First, the principal owners should stay abreast of the business’s financial condition and should routinely regularly review bank and financial records. Examining the books and records allows each owner to question expenses, priorities and withdrawals by the other partners, members, or shareholders, and understand the cash flows. Is one owner favoring himself or herself over the others? If so, why? Are funds being managed or used wisely or prudently, or is there waste or favoritism?

Second, the principal owners should meet regularly to determine current issues and projections, and stay focused on customers, suppliers, marketing, the nuts and bolts of the business, the future, and the business. It is easier to manage and resolve problems and set priorities on the front end or as they arise rather than to try to repair or reset them after the fact or after trouble rears its head.

Third, is another principal owner facing personal, health or other issues affecting the business? Is her or she headed for bankruptcy or a receivership? How will this affect the business now and going forward? With the other owner or owners be left holding the bag and paying the bills?

Fourth, is the person or are the persons primarily managing finances competent and savvy with money and regularly and routinely keeping and maintaining records? Does he or she understand basic bookkeeping or accounting principles or stay current with the business’s finances? Are they very careful with the finances?

Fifth, what is each owner’s business, commercial, financial, and personal history? Does any owner have a history of failed businesses or enterprises? Is the owner litigious or been a party or involved in other lawsuits? Does the owner have a history or using illegal drugs or alcohol? Does the owner have a history of being responsible in personal and other matters?

Sixth, do the owners share common and specific goals? One owner may embrace significant risks and another may shy away from them. One owner may wish to expand to new products, services, markets, or territories but another opposes such. How do you resolve them?

Seventh, when the business obtains loans, banks or financial institutions generally require the principal owners to sign personal guarantees and if there is a default, the individual principal is on the hook to repay the loan. Hence, how important is the loan to the business? Each principal owner should keep up with how the funds are actually spent and if the business is timely repaying the loan.

Eighth, owners of relatively small businesses often spend much time working together. So, the questions become: How well do they work together?

Ninth, if there is a break-up or one owner dies or faces serious health issues, is there a plan in place to deal with that possibility? Is there a buy-sale agreement, succession plan, or the like?

Tenth, one owner may wish to leave the business. What is in place to manage that possibility?

Finally, sometimes, when a principal owner believes a serious problem will unfold and develop, he or she may ignore it or hope that another owner will deal with it and wash his or her hands of it. A “hope for the best and wish it away” strategy is rarely effective. When the fallout begins, recrimination and anger follow and the business may not survive.

Principal owners should consider these possibilities and plan and act accordingly.

At the Law Office of Perry A. Craft PLLC, our Nashville business lawyer can help you when disputes arise between partners, shareholders, and members. We can also help you craft a business strategy that takes these potential disputes into consideration before they occur. To schedule a consultation, call us at 615-953-3808 or fill out our contact form to speak with a seasoned business lawyer.