The fireworks of a dispute between business owners in any small company can threaten not only ongoing business operations, but the business itself.  What happens when business owners argue over the money, work imbalance, or the direction of the company?  How are these disputes usually resolved and who will ultimately prevail?

A lot will depend upon the operating agreement or shareholders’ agreement, and the quality of the these important corporate documents.  Unfortunately, many small business owners overlook the importance of the LLC operating agreement or a corporate shareholders’ agreement.  These contracts establish how the relationship between the owners of the company is going to work.  If you take the time up front to get these right, the likelihood of a dispute and expensive lawsuit down the road is greatly diminished. A well crafted operating agreement or shareholders’ agreement should clearly establish all aspects of how responsibilities are divided, how decisions are to be made and how profits are to be disbursed.

The fireworks of a dispute between owners in a small business distract all parties within the company from the central focus of running a successful business. It is not unusual for some owners to try to take advantage of other owners, especially when there is a substantial amount of money at stake.  This can often result in what is known as the “squeeze out” – where the majority stakeholders simply bully the minority owners, members, shareholders or investors when it comes to corporate decisions, monetary disbursements, or even timely access to the books.

While there are many alternatives to resolving the fireworks of a dispute between business owners it is important to seek counsel on your rights.  The Watkins Firm has more than 40 years of experience working to resolve these disputes while protecting the rights of our clients in these matters.

In matters of outright fraud, mismanagement, embezzlement, commingling, or denial of rights under the corporate documents one of the strongest and most common strategies is dissolution of the corporation.  Minority members or shareholders can attempt to force the dissolution of a corporation if the officers or majority shareholders are “guilty of or have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness toward any shareholders or its property is being misapplied or wasted by its directors or officers.”

Pro-Tip: ‘We’ve had so many shareholder fights where a company, group of friends, or a group of friends who know friends, maybe 30 people invest in a company and it’ll be doing well, but not great. And the investors, the shareholders won’t be receiving disclosures, or they will be receiving them, but they sort of don’t add up. And then they do an investigation and they come to our office and they say, “well, how do we get in there and see the books and records?”

And you get some pushback from the company. And that’s when all the hairs in your neck stand up and we file a motion. And we discover through our due diligence that the company’s doing very good and that they also formed an offshore corporation of the same name. And they’ve taken all the assets and they’re all driving Rolls-Royces. So this has happened more times than I can say, because … it just does happen. Nobody fights over anything unless there’s money involved. If it’s just doing okay, they would tell the truth and say, it’s all great. But if that big money offer comes in the door and they have a way of keeping it for themselves, it’s very tempting for human nature to turn that down.’

In closely held corporations with less than 35 shareholders, more than 1/3 of the minority shareholders must agree in order to petition the court for a dissolution.  This “all or nothing” gambit comes with its own share of risk and reward.

The fireworks of a dispute between business owners can affect every member of the ownership group. The attorneys at the Watkins Firm can help to protect your interests and rights as a member, shareholder or investor.  These disputes are most often resolved through effective, leveraged negotiation by our experienced lawyers.  Leveraged negotiation is the fastest and least expensive path to resolve a dispute between business owners.

Mediation and arbitration are other alternatives to work through disputes and resolve these complex challenges.  If you are involved in a dispute with other owners or partners and are concerned about protecting your rights and interests we invite you to review our podcast Episode 14 – Shareholders’ Rights and Disputes as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.