Small businesses are unique from large businesses in numerous ways. Employment issues, financial issues, liability, formation, and other elements of running a business are all different for small businesses than for other types of companies.
Another way in which small businesses differ from their larger counterparts is in the types of disputes they face. Disputes for any business can arise between customers, clients, vendors, contractors, partners, landlords, and more. But, most often among small businesses, partners face issues over succession plans and disagreements among partners and owners.
Here’s how small business disputes can impact a business, how to avoid them, and how to resolve them when they arise.
The fact is, disputes are generally inevitable. At some point in the life of a business, a customer, partner, vendor, client, or other party is going to raise a dispute with the business. The key to handling disputes is to be proactive.
As mentioned, some of the most common kinds of business disputes that small businesses face are contentions over succession plans and among the partners.
A small business succession plan is an agreed upon plan for the business if one of the owners dies or becomes permanently disabled. An owner of a sole proprietorship especially may face difficulty without a succession plan. The business will likely be forced to terminate, which may not have been the intention of the business owner. It could also be that the owner wanted an heir to inherit the business. But, without proper planning, the business may suffer significant losses or ultimately be terminated.
Similarly, businesses with multiple owners may face serious challenges when an owner dies or becomes permanently disabled. It is usually best practice to provide a succession plan in the business entity formation documents. This means that when the business is first formed, whether as a partnership, limited liability company, an S-Corporation, or any other business entity, there is usually a document that details how the business is going to be governed.
That governance should also include how the death or permanent disability of an owner will impact the business. The owners can choose for the deceased or disabled owner’s share to be distributed among the remaining owners or allow the deceased or disabled owner’s share to pass to that owner’s heirs. There are a few exceptions such as ownership in a law firm, because non-lawyers cannot own an interest in a law firm. But, generally the options are the same for most businesses.
By agreeing in advance as to how to handle this type of situation, it can save the business and the owners significant strife down the road when the unexpected happens.
Just like careful planning in the formation of a business can help keep the business running smoothly if one of the partners or owners dies or becomes disabled, planning can also mitigate the risk of disagreements among the partners related to any and all other matters.
No matter how well-intentioned partners are when they start a business, people and circumstances change. Sometimes an owner may also engage in behavior that harms the business. A clear understanding of the rules that govern the business will help mitigate the risk that any serious disagreements will negatively impact the business.
The best way to resolve small business disputes is to carefully communicate expectations up front. The clearer all the parties can be in their communication, the less likely there is to be any kind of serious issue later on.
When expectations have not been clearly established or communication stalls, business owners must find another way to resolve their conflicts.
Remedies can range from going to counseling with a business partner in order to develop better communication skills with each other to the more extreme option of taking a partner to court to settle disputes. In the middle, there may be other options such as mediation or alternative dispute resolution that can help business owners resolve their differences.
Problems with parties outside of the organization such as with clients, contractors, vendors, and the like can also be resolved through similar means. Going to court is usually the last resort. Litigation is expensive and takes considerable time.
By proactively developing quality agreements in advance that also specify how disputes will be handled such as going to arbitration, small businesses can avoid a lot more problems down the road.
Business matters can be very complex. They involve a variety of areas of law as well as financial issues that may require professionals in the financial sector. It is important to seek help from an experienced business attorney if there are problems in your business. The sooner you can get advice, the better your chances are of concluding the matter in a satisfactory way.