Owners of Closely Held Businesses – When Good Times Go Bad

Attorney Neal Bookspan, a partner at the Phoenix law firm of Jaburg & Wilk, handles a variety of business, bankruptcy and litigation issues. Here Neal sheds some light on conflicts in closely held businesses. A link to Neal’s profile can be found by clicking here: ABOUT ATTORNEY BOOKSPAN <http://jaburgwilk.com/attorneys/neal-h-bookspan.aspx>  and I have included some basic contact info for him below as well.

 Neal, thanks for your help on this issue. Here’s what Neal had to share:

Once upon a time, you and a friend, family member, or even a spouse, decided to go into business together. At first, things were great because of the possibilities and the excitement that new challenges bring. You may have formed a corporation, an LLC, a partnership or even operated as a sole proprietorship. If there are only two of you, you may even own the company equally, which requires both of you to agree on any important company issues.

As with all things, the nature of business and relationships change over time. They may change for the better, but many times, the changes result in people growing apart or in different directions with different goals. One business partner may even be committing bad acts such as taking money or business opportunities from the company. When this occurs, whether it is between friends, family members or spouses, or with a former employee, it can easily damage or destroy the company you have worked to hard to build. This does not even take into consideration the emotional toll and stress such a situation can cause, including making the time you spend at the company you have helped to build highly unpleasant.

When these types of situations arise, it is important to know that there are options. In the perfect world, many of these issues may be resolved through agreements that have been put in place by the owners of a company at the time of its formation, or at any time before a dispute arises. Various types of agreements can create a roadmap to determine how to proceed to resolve disputes, including operational issues, changes in ownership, or the ownership structure of the company. You also can put agreements in place to prevent potential damage by former employees. Even if you do not have these types of agreements in place yet, there are actions that can be taken at any time to help you have a roadmap to deal with future or pending disputes or issues. These efforts to manage your risks can help you to avoid the unknown and operate your business in a more efficient manner.

Many people do not recognize these risks at the outset of a business venture. No matter how much money is being invested into the new venture, it is being built on hopes and dreams. Even though the issues raised in this article can arise at the outset of a business venture or relationship, the usual scenario is that disputes arise further down the road when the business plan has been put to work and has been successful.

These are good reasons to consult with an attorney when starting a company or new business venture to put systems and controls in place to help you manage potential risks should any arise down the road. It may well be one of the most important uses of your company’s capital, whether at startup or later, and help you to avoid incurring much higher attorney’s fees and costs that will be incurred if these risks have not been managed and disputes arise in the future. If you have any questions, please feel free to contact me. 


Email: nhb@jaburgwilk.com <mailto:nhb@jaburgwilk.com>

Phone: 602-248-1000

Practice areas:Bankruptcy <http://jaburgwilk.com/services/bankruptcy.aspx>  Construction Law <http://jaburgwilk.com/services/construction-law.aspx>  Corporate Transactions <http://jaburgwilk.com/services/corporate-transactions.aspx>  Creditor’s Rights <http://jaburgwilk.com/services/bankruptcy/creditor’s-rights.aspx>

Remember, the best we can do here is general info – NEVER – specific legal advice, so call Neal for help that is fact specific to you.

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