Corporate Law Blog

Resolving disagreements in a closely held business

Those managing closely held businesses are as prone to disagreements with each other as are those managing any other kind of business. However, a closely held business does present a unique series of challenges in that resolution of those disagreements can be difficult to resolve.

For example, it's possible for disagreements to arise that cannot be resolved when neither owner has the capability of out-voting the other owner. While state laws may be in place to address certain of these disagreements, relying upon such laws is likely to result in a less than ideal solution.

The laws do allow for courts to dissolve these businesses. But before doing so, the court still may require a number of steps to be taken before it will order a dissolution to take place. And even after a ruling that a business can be dissolved there may be shareholders that will wish for the business to continue. This may result in circumstances where those wishing to continue the business will end up buying out dissenting owners. Finally, this can also result in disputes over what the fair market value of the shares to be purchased really is.

It is therefore important to take care when setting up a closely held business and make certain that business agreements are in place that will take care of every contingency. The need for advice and counsel of an experienced entrepreneurial attorney cannot be understated when a business startup is anticipated. These attorneys can help those setting up the business avoid mistakes that can result in little or no direction in dealing with conflict.

Source: Mondaq, "Litigation Lessons: When Closely Held Business Owners Disagree," Scott H. Harris, April 29, 2014