Home > Uncategorized > Lesson Regarding Business Disputes: Be Pro-active. Avoiding The Problem Doesn’t Make It Go Away.

Lesson Regarding Business Disputes: Be Pro-active. Avoiding The Problem Doesn’t Make It Go Away.

I met with a client today. My client is looking to sell his shares in his Company to the other owners.  His company is a closely held business with a few shareholders who make all the business decisions.

 

My client knew that he should have begun this process a long time ago.  He could see the warning signs, but the Company was doing so well that he tried to avoid the conflicts between the other shareholders (family members – which adds another relational layer to the business relationship).

 

It wasn’t until the business relationship had absolutely deteriorated and he was desperate to get out that he sought legal counsel.

 

Strategically speaking, this is probably one of the worst times to get out, yet it is most common.

It is one of the worst times to get out for several reasons:

  • The value of the business could have been hurt by the poor business relationship of owners (which in turn diminishes the value of his Company stock);
  • disgruntled owners are more prone to making mistakes/poor decisions that may violate their fiduciary duties that they owe to other shareholders and to the Company (when they are upset, they aren’t necessarily thinking about the best interest of those they angry with);
  • At this point in the business relationship, business disputes take on a personal nature (especially when family is involved) where emotions may run high and cloud each shareholder’s otherwise sound ability to make an amicable buy out – or at least to make a sound business decision. This point is particularly dangerous because a failure to reach a reasonable buy out  could result in litigation which is costly for all parties. For more on this point See: https://jeshualaukalegalnews.wordpress.com/2013/08/27/business-disputes-in-closely-held-companies-a-warning-why-business-partners-should-not-be-quick-to-file-lawsuits/

 

My point in all of this is simple:

 

Avoiding problems in close business relationships does not make the problem go away – it makes it worse!  

This isn’t rocket science, but it is a fact that often times  people wait to properly address important finance and business decisions when it is too late. It is why  many people don’t have estate plans (even lawyers!) However, that is another topic altogether.

 

I end with two simple takeaways for business owners in closely held companies:

 

1.  Be proactive to address shareholder disputes before they spiral out of control. 

Consult with an attorney about your rights/duties.

2. Be Sure that in your Frustration you don’t violate your Fiduciary Duties.

Corporate Shareholders, Partners, and Members in Limited Liability Companies all owe statutory duties to act in the best interest of the company, and for each business partner. See M.C.L.A. 450.1541a of the                   Business Corporation Act; MCL M.C.L.A. 449.21 Uniform Partnership Act; and MCL 450.4515 of the Michigan Limited Liability Company Act.

 

 

 

Do you have an interesting issue related to business or real estate? I’d love to hear about it.   

Email or call me. Email: Jeshua@dwlawpc.com / Ph: (616) 454-3883.
You can also visit my law firm’s website at http://www.dwlawpc.com.

 

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Categories: Uncategorized
  1. September 30, 2013 at 8:44 am

    Great Advice!
    No doubt, it can be tough to tackle disputes between shareholders, but I’m fairly confident that things always work out better if they are addressed and resolved soon after they first arise – especially if they have a close relationship or a personal (as opposed to strictly professional) relationship with each other (as with family).

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