Law for Entrepreneurs: Settling Business Owner Disputes
No matter how long you may have been in business with a partner, you will disagree from time to time. When disagreements in business partnerships arise, some can be difficult enough to resolve that they require the assistance of a business dispute lawyer.
While this can be an effective means of recovering your damages, the first objective should be to try to resolve disputes on your own. Ensuring you have a plan to prevent or, at least, mitigate the potential damage caused by a dispute is the best route to take.
Why a Conflict Resolution Plan Is So Important
Regardless of the reason for disputes in a business partnership, at one time both parties had the same vision for the business, and that vision was what allowed the business to become successful. In allowing a dispute to go unresolved, a business is put in far more jeopardy than it would be if a competitor were threatening it. Although you cannot avoid disagreements with your business partner, having a roadmap to settling disputes can help both of you maintain your focus.
Elements of Healthy Conflict Resolution
There are several elements which should be included in a conflict resolution plan. Each of these can serve as a reminder of your original agreement and help bring you both back down when emotions are high.
When you are both passionate about what you’re doing, it can be easy for things to escalate quickly. The first thing to attempt when a dispute arises is to agree to put your emotions aside and stop fighting. Don’t focus on disagreements about who or what caused the issue; instead, be able to mutually agree on working together to find a solution that will benefit both the business and the partnership. This will prevent irreparable damage to both.
Get a Complete Understanding of the Cause
The resolution of any dispute begins with identifying the reasons why it occurred in the first place. Typically, the actual cause lies well beneath what was done to cause the dispute. If you or your partner neglected some aspect of the business and this caused the business dispute, you will need to be honest with yourselves and each other about why this occurred. Being respectful and listening will be incredibly important, here; you will both need to agree to listen until the other party is finished before responding.
Being willing to put oneself in the other’s shoes, as well as being open about what occurred and communicating about the problem will lead to a solution.
Seek Help from a Third Party
Sometimes, no matter how hard you and your partner try, focus can be lost and, with it, the solution. Should this happen, it can be of great benefit to seek the help of someone who is uninvolved. Choosing someone that both of you respect will go a long way toward reclaiming focus and getting back on track. This person can be a professional mediator that you have in-house or can be hired. Help can also come from a board of directors—something that many businesses have in place when objectivity is needed.
The ideal scenario is that, by hiring or obtaining advice from a mediator or board of directors, a solution will be found. Once this occurs, the issue should be reviewed on a regular basis to remind both parties of the reasons it occurred, how it was resolved, and how to avoid this from happening in the future. It may be that the entire business plan will need to be reviewed and revised to include each partner’s concerns, which can make things easier for you and benefit the business itself.
Your review of the business plan should also include a review or the inclusion of exit policies, which outline the steps a partner needs to take if they have decided they can no longer be in a business partnership. Here, it will become important to focus on the business relationship only. If there is a friendship as well, the desire to not damage the friendship can result in an unnecessarily prolonged dispute.
Only when it is felt that independent resolution of the dispute is not possible, and all attempts at a resolution of the dispute have been exhausted, should you dissolve your partnership. It is at this stage that both parties are advised to retain a business litigation attorney.
Because the state of Texas doesn’t require written partnership agreements, you may not have one. If this is the case, you will need to rely on the provisions set forth by Texas partnership law. This law requires any business partnership that intends to dissolve to pay all outstanding partnership debts and decide how any assets within the partnership will be divided. In Texas, in order to dissolve a partnership with an agreement, the express will of the party or parties with a majority-in-interest is necessary.
This means that the partner holding more than 50% of the ownership of the business must express his or her desire to dissolve the partnership. In cases where several partners are involved, a majority must vote in favor of a written intent to dissolve the partnership.
Payment of Debts
One basic concept of business law is that, following an agreement or vote to dissolve a partnership, debts must be paid and assets distributed among the partnership. In Texas, the Uniform Partnership Act requires businesses to first pay creditors, and then return capital contributions to the partners who made them. Only then can remaining assets be distributed.
Letting Others Know
Although you aren’t required by law to file any forms with the state of Texas when you dissolve a business partnership or notify customers or creditors, doing so can protect you from financial losses. For example, if you don’t notify anyone of your decision to dissolve, and your partner decides to make a deal with a customer, that customer can hold you to the deal they made, which can lead to debt being incurred.
Getting Legal Advice
Should the situation get out of hand, the best thing to do is find a business dispute lawyer. Not doing so can place you at risk of significant financial loss. Preparing yourself will be crucial if you need to represent yourself in court, and an attorney can help you do just that. However, not just any attorney will do; you may know someone who knows something about business law, but, with all of the money and assets that are at stake, what you really need to protect your interests is an expert.
What the Right Attorney Can Do for You
It’s recommended that you retain a lawyer right from the beginning, when you are just preparing your partnership agreement, because the lawyer can ensure that this document is clear for all parties. It can also help to consult an attorney prior to making the decision to dissolve a partnership because the attorney can help you ensure that it is done legally. However, even if you only retain counsel when your dispute cannot be resolved on your own, an attorney can help prevent you from losing assets by ensuring that several important steps are completed.
For example, an attorney can look at all aspects of the dissolution agreement and process to confirm that these were processed in a legal manner, identifying any areas which could potentially cause problems in court. An attorney can also ensure that all necessary documents are located and present when the time comes to stand before a judge. As well, the attorney can provide the objective point of view that is no longer present in the partnership, which can help you dissolve your partnership in a logical and efficient way.
Even if you already think you have all of your documents and points of argument in place, it may not be enough to achieve a painless dissolution in court. The qualified attorneys at Johnson Garcia LLP have extensive business law experience, having represented several successful business resolution cases. Discover how our experience can benefit you by claiming your free consultation today.