Keeping your dealings with those lawyers limited! How best to avoid disputes in owner managed businesses

In owner managed businesses disputes at shareholder/director/partner level arise from a wide number of causes but typically involve disagreements regarding overarching strategy, day-to-day management, exclusion from decision making, putting personal interest before the business and the terms of exit.  While there is some statutory protection, this is limited and disputes only serve to distract the business away from its purpose of making profits.

 

It may be another “inconvenient truth” but the best way to avoid a dispute occurring is for the owners to reach agreement on how the business is to be organised and their respective roles, rights and obligations in that business and to each other. This should always be done before commencing trade although the commercial realities of start ups is that funds are often short and therefore engaging a lawyer to cover the legal niceties may not be considered a priority. Unfortunately the failure to agree a Shareholders, LLP or Partnership Agreement at the outset often proves to be a false economy as the business subsequently grows, a dispute arises and there is no agreement governing the relationship between the owners. Nevertheless it is only ever too late to put in place an agreement once a dispute has arisen and the parties cannot reconcile it without resorting to highly disruptive and costly litigation or dissolving what may well be a highly profitable business.

 

While it is not possible for any agreement to cover every possible scenario and thereby obviate the need to ever resort to litigation, the more areas that can be pre-determined by agreement in a shareholders or partnership agreement the less the chances of a dispute occurring.

 

Max Lesser is one of three partners in the company, commercial and employment department at Philip Ross a twelve partner full service law firm based in Queen Anne Street London W1 and Bushey. He has 30 years’ experience of drafting shareholders, partnership and LLP agreements and Georgina Kyriacou specialises in business disputes including unfair prejudice claims by minority shareholders.

 

Max is a business lawyer with a pragmatic and highly commercial approach developed over an unusually diverse career with more than 25 years in private practice for small and large city law firms including international city giant Norton Rose advising businesses from start-ups to multinationals.