Managing ownership disputes before it’s too late.


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Managing ownership disputes before it’s too late.

The best solution to ownership disputes is prevention, but in the event of disputes find out how to best manage them to avoid it becoming a serious threat to business.  

In small/medium enterprises with more than one owner, it is inevitable that partners will occasionally disagree on how the business should be run.  Where an environment of mutual respect embodies the partnership, disputes are able to be quickly and simply resolved. But what happens if partners find themselves in far deeper disputes?

Many businesses are founded by friends/family who share a vision or idea they hope can be turned into a successful venture. More often than not these ventures are started on trust and goodwill, but  with very little or ineffective documentation of the intended relationships of the parties involved. Too often the stresses connected with managing a growing business, or one that isn’t making money, or dealing with changing personal circumstances, can lead to tensions between owners. If these tensions are not resolved, they can lead to significant damage to a business. The simplest form of disruption is the “distraction factor”.  It takes the owners’ focus off the business and reduces the levels of motivation and effort. This seem relatively inconsequential in the short term but can become significant over time to the point where it impacts on the profitability and/or cash flow and the enterprise value of the business and therefore acts to reduce the value of an owner’s asset.

As conflict grows, the disruptions spread to other stakeholders including employees and family and it then becomes more and more difficult for the dispute to be resolved.

The best solution to ownership disputes is prevention.  If two or more people are to work together, it is important to establish at the beginning the respective roles within the business and who will be in charge. This may seem very one sided but that is what is intended as most partnerships still require a “Managing Partner”. This must be a documented process.

If you are determined to have a business ownership structure where there is equal ownership and decision making control, it is essential to agree to some basic rules which include a “dispute resolution process” and this should be agreed and set out in writing while the business partners are still in the stage of enthusiasm and a working friendship.

These rules are best documented in a partnership or shareholder agreement, which should allow the owners to quickly resolve any disputes.  If these mechanisms have not been established and a dispute has led to a point of impasse between the concerned parties, then external help should be sought to resolve the position as quickly as possible to minimise damage to the business.

A simple shareholder agreement can be prepared along these lines by an experienced commercial lawyer and there are many articles available to give guidance on the preparation of the content such as CPA Australia’s Factors to Consider in a Partnership or Shareholder Agreement’ (2016)’.

If a business finds itself in a position where there is no clear agreement in place and the commercial relationship has begun to degrade to the point where it is negatively impacting, or has the potential to negatively impact, not just the personal relationship but the business itself, it is time to seek external assistance.

When it comes down to it, there is no ONE way to resolve dispute however the quicker a dispute can be resolved, the less damage that will occur and the sooner the business can look to recover any lost ground. A protracted dispute will not benefit either party and it may mean all parties need to accept a trade-off to reach an outcome. Often business disputes are similar in emotive strain to divorces, they can wreak as much havoc emotionally and financially and be difficult to resolve unemotionally.

Having an independent party acting in the interest of the outcome rather than the interest of any individual party can greatly increase the likelihood of a mutually beneficial outcome and in a timely manner which will ultimately save the business money and work to preserve the business value.

Over the last two decades dVT Group have acted in over 100 of these types of scenarios, where we have carefully navigated management disputes to achieve the best possible outcome and often to everyone’s benefit.

To learn more about ownership disputes, call Brendan Ryan at the dVT Group on 02 9633 3333 or via email brendan@dvtgroup.com.au.