If more than one person owns a business, there will be disputes. It’s just a matter of what will cause a conflict and how serious it will be as a partnership dispute lawyer can share. Who owns how much of a business and the party’s role in running it can be fundamental disagreements that can bring an otherwise healthy company to a halt. These disputes are common, but in many cases, they are preventable.
How Can An Ownership Dispute Be Prevented?
A company could start with multiple owners, or a single owner could be joined by others after the business begins operating. In either situation, clear and complete communication is necessary for everyone to understand their status and roles. That discussion and agreement should be followed by:
- The formation of a legal entity that owns the business
- A written ownership agreement including a description of who owns what share of the company, their role, and processes to be used if a party wants to leave, how a party can be forced out, how the agreement can change, and how the company should be run
A verbal ownership agreement may be legally enforceable, but it can create uncertainty if the parties disagree on the terms. Instead of a court spending time interpreting the agreement, the focus may be on whether a contract exists and, if so, its terms.
What Happens If Owners Can’t Agree On How The Company Should Be Run?
Like any dispute, the parties should try to build on what they agree upon and work on the issues where they differ. The agreement should include how to handle the “worst-case scenarios” where a co-owner sells their stake to others or how the business can be ended, and co-owners go their separate ways.
If the parties act in good faith and genuinely want to continue with the business, there are different approaches to resolving an ownership dispute as our friends at Focus Law LA can share:
- Do the parties disagree on the facts of the circumstances leading to the dispute? Is the company more or less profitable than the spreadsheets state? Are customers coming or going? The parties should discuss how these facts are gathered and alternative methods that may put everyone at ease
- Do the owners dispute how the company should respond to the facts or what they mean? Facts may be interpreted in many ways. One party may want to “stay the course,” while another may see trouble ahead that must be avoided. Hiring an independent business consultant to look at the facts and discuss the parties’ viewpoints could help significantly. That outside expert may agree with one side or the other (and explain why) or find that both are mistaken and propose a novel way to address the issue. Sometimes, business owners are too close to the situation, and an outside viewpoint can bring clarity where there are disagreements and confusion
Are there fundamental personality conflicts or irreconcilable differences? If so, a business divorce may be the most practical option. The ownership agreement acts as a prenuptial agreement, spelling out how this will happen and what assets, liabilities, and responsibilities the owners will have after the business closes.
Discuss the situation with your attorney, whether you’re starting a business with multiple owners, adding another owner, or encountering disagreements with your company’s co-owner. Many legal, financial, and factual issues may be at play, and expert legal advice may protect your interests and legal rights.
