McBride Law Blog

Business Divorces – Post 7

McBride Law Blog

// R. Shawn McBride // No Comments »

Post 7

This series focuses on “business divorce,” the break-up of a business between business owners due to disagreement or other circumstances.  A business break-up leads to either one owner continuing the business without the other owner, the forced sale of the business to a third party, or a total dissolution or winding up of the affairs of the business.  Because the situation can be contentious, it may lead to unnecessary litigation.  Shutting a business is often not a viable option, so it may be better for one member to either buy out the other member or sell its stake to the other member.  Thus, it may be good for business owners to think ahead, discuss, and consider preparing an exit plan where one business owner may exit sooner than the other, in effect like a business prenuptial agreement.

This will be a multi-post blog entry.  Our earlier post discussed Buy-Sell Options that business owners may explore for a quick resolution in a disagreement, and can be found here at our website — www.mcbrideattorneys.com.  This seventh post focuses on mediation, a dispute resolution mechanism when the Buy-Sell Option does not work.

Post 7 – Alternate Dispute Resolutions

 

Should the Buy-Sell Option not work for any reason, business owners may want to consider resolving the issue through mediation.  Mediation is a procedure in which parties discuss their disputes with the assistance of a trained impartial third person(s) who assists them in reaching a settlement.[1]  Essentially, it is a collaborative approach to problem-solving designed to help parties understand each other’s position, identify the problem, and work things out in a less contested and adversarial setting.

If you decide to go the mediation route, the first step is to find a mediator.  If you belong to a business association, such as a chamber of commerce, or the Better Business Bureau, you can check to see whether they have a mediation program tailored to small businesses, as many of them often do.[2]  The conference is held at a mutually agreeable neutral place, usually at the office of the mediator or another private facility unavailable to the public.[3]  After an opening statement by the mediator, parties are given an opportunity to give an account of the facts and circumstances that led to the dispute and, jointly and in separate sessions with the mediator, identify areas of settlement.[4]  Negotiation will continue until there is a settlement or the mediator declares an impasse and ends the mediation.[5]  Importantly, mediation depends on the parties’ willingness to resolve the dispute (i.e., the mediator has no real power), the result of which is usually non-binding.

Mediation can be particularly beneficial to small business owners for several reasons.  It is far more efficient and less expensive than litigation (or arbitration), where proceedings take longer and legal bills higher.  Mediation proceedings are private, which helps protect the confidentiality of small businesses and their reputation within the community.  Last, but not least, the collaborative nature of the process facilitates an amicable resolution of the dispute, a huge plus if parties want to ensure ongoing or future business relationships.

That said, if mediation fails or is not an option, business owners may consider arbitration, another alternative dispute resolution mechanism, to resolve their dispute without going to court.

Our next post will focus on arbitration and potential issues related thereto.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.

[1] Joyce Ann Gates Mitchell, What Is Mediation and How Does It Work?, http://corporate.findlaw.com/litigation-disputes/what-is-mediation-and-how-does-it-work.html (last visited 1/30/2015).

[2] NOLO, Mediation for Small Businesses, http://www.nolo.com/legal-encyclopedia/mediation-small-businesses-29590.html (last visited 1/30/2015).

[3] See id. supra n.1

[4] See id.

[5] Id.

Facebooktwittergoogle_pluslinkedinmailAbout the Author Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email or call (214) 418-0258.


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