Disputes Between Business Owners in a Closely Held Business~4 min read

Disagreements between business owners can affect daily operations and long-term plans. Reviewing your agreement, addressing issues early, and getting legal guidance can help you protect your interests and decide what makes the most sense for your business.

When Business Owners Disagree

When you own a business with one or more partners, disagreements can arise over time. You may not agree on how the business should grow, how money is handled, or who is responsible for certain decisions. While well-drafted governing documents can help avoid disputes, sometimes the governing documents do not explicitly provide guidance.

In a closely held business, these disagreements can directly impact operations. With a small group of owners, there are fewer layers between decision making and daily activity. If an issue is not addressed, it can affect employees, customers, and the direction of the company.

Common Sources of Conflict

Closely held businesses typically have a limited number of owners, which means responsibilities and financial interests are closely connected. Disputes may involve:

• Control over daily operations
• Use of company funds or decision-making authority
• How profits are distributed
• Whether one owner should buy out another
• Whether to sell or continue the business

Recognizing where disagreements tend to arise can help you address concerns before they grow into larger problems.

Start With Your Agreement

One of the first steps you should take is to review your governing documents. This may include a partnership agreement, operating agreement, or shareholder agreement.

These documents can outline how decisions are made, how ownership interests are handled, and what happens if owners disagree. Even a simple agreement may provide direction on voting rights, buyouts, or dispute resolution. Often, the governing documents can be amended to address issues early.

If your agreement does not cover the situation, you may need to look at other ways to resolve the issue.

Address Issues Early

It can be tempting to avoid conflict, especially if you have a long-standing relationship with the other owner. However, delaying the conversation can make the situation harder to resolve.

You should raise concerns early and keep the discussion focused on the business rather than personal differences. In some cases, a direct conversation may lead to a workable solution.

Options for Resolving the Dispute

When owners cannot agree, it may be a good time to speak with an attorney to better understand your rights and options. Getting legal guidance early can help you evaluate the situation and determine the next steps that make sense.

In some cases, you may also consider mediation. This involves working with a neutral third party who helps keep discussions focused and productive, especially if you want to preserve the business relationship.

Once you have a clearer understanding of your position, there are several ways the situation may be resolved, including:

• Continuing to operate with clearly defined roles and responsibilities
• Adjusting ownership or profit distribution
• One owner buying out the other
• Selling the business and dividing the proceeds

If the disagreement involves a buyout or ownership change, the value of the business may become part of the discussion.

When Legal Action Becomes Necessary

If the dispute cannot be resolved through discussion, negotiation, or mediation, legal action may be required. This can involve issues such as misuse of company funds or failure to follow the governing agreement.

Taking this step can help protect your ownership interest and bring structure to the situation.

Moving Forward After a Dispute

Once the issue is resolved, it is a good idea to revisit your governing documents. Updating your agreement can help reduce the risk of future disagreements.

You may want to clarify roles, outline decision making procedures, and include steps for handling disputes.

Contact Springer Lyle & Dameron

If you are dealing with a dispute between business owners, it may be time to take a closer look at your options. The attorneys at Springer Lyle & Dameron can review your situation, explain your rights, and help you determine the next steps for your business. To schedule a consultation, contact Aubry Dameron at 940-387-0404.

Springer Lyle & Dameron is located at 1807 Westminster, Denton, Texas 76205.

FAQs

• What is a closely held business?
  A closely held business is a company owned by a small number of individuals, such as partners, family members, or a limited group of shareholders.

• Can one owner force another owner out of the business?
  It depends on your governing documents and the circumstances. Some agreements include buyout provisions or terms that allow an owner to leave the business under certain conditions. If there is no clear agreement, the situation may require legal action to resolve.

• What happens if an owner is misusing company funds?
  Misuse of company funds can lead to serious legal issues. You may have the right to take action to protect the business and your ownership interest. Speaking with an attorney can help you understand what steps are available based on your situation.