Family fights often become emotional far faster than disputes between strangers, and the fallout can be far more harmful. When a family business dispute erupts into litigation, the stakes are even higher. In addition to the business’s profitability and reputation being threatened, the jobs and well-being of its employees and the very existence of the business may be on the line.
Because even the shrewdest business owner’s judgment may become clouded when dealing with a family member, solutions that may seem obvious to an objective viewer can feel unfathomable to the parties involved. Fortunately, there are legal tools available to help resolve family business disputes, as well as to assist in preventing them.
No one plans to have a family business dispute. But it is wise to consider the possibility of future disputes when forming a new business entity, its operating agreements and contracts. A strong contract may provide the clearest method for resolving problems. It may include terms for:
- Each owner’s rights and responsibilities
- Transferring leadership or ownership
- How and when stakes in the company can be sold
- Consequences for failing to honor the terms of the agreement
- A process for resolving disputes out of court
Conflicts arise within family businesses for all types of reasons. Sometimes, it can be hard to navigate work and relationships when patterns of authority are upended in a family business, such as when a child becomes a parent’s boss. Tensions frequently run high when parents who own a business wish to transfer their ownership unequally between their children. Divorce, marriage, birth of a child, death in the family and other events can also spark conflicts that affect the business.
Regardless of how a fight starts, it is generally in the best interest of the business to resolve it in a timely manner. Because litigation can be drawn-out and expensive, the following alternative dispute resolution practices are usually preferable:
- Mediation — Using this method, each party to the conflict shares their priority goals and concerns with an impartial professional mediator, who facilitates discussions and proposes solutions that consider each party’s interests. The mediator’s proposals are non-binding, so parties can either mutually agree upon them or abandon the mediation process.
- Arbitration — Both parties may agree to arbitration after a dispute begins or may be forced to arbitrate due to a clause included in the business operating agreement. Unlike mediation, arbitration is a private trial of the contested issues. The arbitrator hears from both sides, considers the evidence and makes a decision that is usually binding.
Speaking with a family therapist or other trusted, neutral third party may also help family members to find common ground.
Based in Pittsburgh, Pennsylvania, the attorneys of Feldstein Grinberg Lang & McKee, P.C. provide steady guidance during family business disputes and represent business owners in dispute prevention and resolution. To schedule a free initial consultation with one of our lawyers, call 412-301-7395 or contact us online.
