I DON'T THINK WE ARE GOING TO REMAIN FRIENDS
What Happens When Owners of Closely Held Companies are
Deadlocked or in Dispute with Each Other or Former Employees
By: Neal H.
You and a friend,
family member, or even a spouse, decided to go into business
together. At first, things were great because of the
possibilities and the excitement that new challenges bring.
You may have formed a corporation, a limited liability company, a
partnership or even operated as a sole proprietorship. If
there are only two of you, you might have owned the company
equally, which required both of you to agree on any important
As with all things,
the nature of business and relationships change over time.
They may change for the better. However, the changes may
result in people growing apart or in different directions with
different goals. One business partner may even be committing
bad acts such as taking money or business opportunities from the
company. When this occurs, whether it is between friends, family
members, spouses or a former employee, it can easily damage or
destroy the company you have worked to create and build. You
might even need to continue to work, side by side, with this
person. Couple the potential financial loss of your company
with the emotional toll and stress such a situation can cause and
you are likely overwhelmed.
When these difficult
and sometimes untenable circumstances arise, it is important to
know that there are options. In a perfect world, many of
these issues could be resolved through agreements that were put in
place by the owners of a company either at the time of the
company's formation or at any time before a dispute arises.
Various types of agreements can create a roadmap to determine how
to proceed to resolve the most common disputes - operational
issues, changes in ownership, compensation, or even the ownership
structure of the company.
You can also prepare
agreements such as non-compete or restrictive covenants to prevent
potential damage by current and former employees. Even if you
do not have these types of agreements in place currently, these are
steps which can be taken at any time. These will provide a
plan to deal with future or pending disputes and challenges and are
good faith action steps to manage your risks. They may also
help you avoid emotionally charged challenges with friends
and family members as well as operate your business in a more
Many people do not
recognize these potential risks at the outset of a business
venture. No matter how much money is being invested into the new
venture, it is ultimately being built on someone's hopes and
dreams. Even though the issues contemplated herein can arise
at the outset of a business venture or relationship, the more
likely scenario is that disputes arise in the future when the
business is operational, viable and successful or the business is
These are all good
reasons to consult with an attorney when starting a company or new
business venture to put systems and controls in place to help you
manage potential risks should any arise down the road. It may
well be one of the most important uses of your company's capital,
whether at startup or later, and help you to avoid incurring future
costs. It is almost a guarantee that you will have negative
financial impacts if these risks have not been managed and disputes
arise between partners or former employees in the future.
About the author: Neal H.
Bookspan is a partner at the Phoenix, Arizona law firm of Jaburg Wilk. He assists clients
bankruptcy litigation. Neal can be reached at firstname.lastname@example.org.
This article is not intended to
provide legal advice. This article only covers United States
Law. Always consult an attorney for legal advice for your
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