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How Mediation During Ownership Disputes Can Save Your Small Business
Posted by Lagerquist Accounting & Advisory
Business relationships are like all relationships: highly complex, emotionally fraught and deeply intertwined on many levels. If you are a co-owner owner or partner with other individual(s) in a small business, you might even feel that the complexities of your business relationships easily rivals those of marriage and family ones.
An important question, then, is what to do if the relationship goes downhill. Let’s say you and your partner(s) aren’t getting along very well these days. You are thinking of activating the buy out provision of your partnership agreement. When you read over the agreement, you aren’t sure if you fully met all the requirements in the buy out section for one reason or another. The penalties for violating other clauses of the contract, such as the non-compete provision, are pretty onerous. You are worried about this break-up getting messy, ugly and expensive. What can you do? You are fearful that a trip to your attorney’s office won’t solve the problem and will cost you dearly. So who can assist you in achieving a resolution?
Mediation is a process where a neutral third party assists parties in a dispute to problem solve and find a solution that works for everyone. This third party is essential: when the business relationship is cracked, trust is probably broken, and it’s difficult to talk about issues yourself.
Here is how a mediator can help, and how we’ve often other business owners:
Preliminary Meetings: I meet with the disputing parties separately to see if they want to engage in mediation. Mediation works best when all parties in the process agree to come to mediation and agree on and help select their mediator. This scoping or convening process helps the parties identify the issues and the kind of help they need from the mediator.
Face-to-Face Meetings: In these sessions, which generally last two to three hours at a time, each party gets uninterrupted time to define the dispute from their perspective. There may be raised voices and ugly words, but usually there is also progress. Hurt feelings may be at the core of the dispute, so acknowledging emotions goes a long way to problem solving. Sometimes it might be a misunderstanding about business roles and responsibilities. In this event, the mediation can clear up the problem and you will be able to continue your thriving business. That has happened with many of our clients.
Option Development: While it is best for parties to develop their own options, sometimes they are too close or emotionally entangled to do so. In this case, I help offer potential options that have been successful in other cases (of course, every situation is unique). I’ve helped my clients see options they had not thought of before. They went into mediation assuming their business was doomed and all their hard word would be lost. They never expected that the business could continue successfully in a different constellation.
Negotiation Assistance: In mediation, the parties control and decide the outcome. This is very important. If one of the parties initiates legal action, they have almost no control over the outcome and the cost is prohibitive. Moreover, once litigation is initiated it is often hard to salvage the underlying business relationship. If the partners decide to break up, then the mediator can help negotiate the details of the business divorce.
Agreement Drafting: Once the parties reach an agreement, the mediator drafts a settlement agreement and exchanges drafts with both sides. I often interface with counsel when each side wants to get independent legal advice. In this way, legal fees are saved because each attorney is only reviewing the agreement rather than creating it from scratch.
How long does the mediation process take?
It depends on the depth of the controversy and the willingness of the parties to compromise. It takes an average of two to three multi-hour meetings with some phone and email follow up. If there are time contingencies in the equation, the sessions may be scheduled close together. However, I have found that people often need some time between sessions — either to think about what transpired or to gather missing information about options.
Guest blogging content is provided by Ellen Kandell, Esq., Principal of Alternative Resolutions, LLC. Her comprehensive mediation and facilitation experience is built upon a solid foundation of over 30 years of litigation and public policy work in the public and private sectors.
She can be reached at firstname.lastname@example.org.
Image Credit: mdgovpics (Flickr @ Creative Commons)
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