Partnership and Shareholder Disputes: How to Avoid \u0026 How to Resolve

a mediator is a neutral third party who makes a binding decision to resolve a conflict. This is a topic that many people are looking for. is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, would like to introduce to you Partnership and Shareholder Disputes: How to Avoid & How to Resolve. Following along are instructions in the video below:
Everyone this is brett cenkus. I am the right brained business lawyer and a business business consultant and this is another video in our series about mastering your business. Partnerships last time.
We talked about being the right partner finding the right partner those are kind of two sides of the same coin and at the end. I said wed talk this time about exiting bad partnerships or hitting the eject button getting out of a bad partnership before we do that though i want to spend a little bit of time on dispute. Resolution.
Generally so exit. Clauses will be a future video. Today.
Were going to talk about dispute. Resolution. If youve read any commercial business contract.
Theres a section towards the back. What we call boilerplate. That talks about how you resolve a dispute and the things youll see in there typically are what court what home state or counties courts govern in other words if the parties get into a dispute where will they go file a lawsuit.
Where do they have to file a lawsuit. It will also cover what will be the governing law. Under which the contract will be interpreted those are part of dispute resolution.
Well get to those in a minute. But i want to talk about things that should be in partnership agreements around dispute resolution. Because you need a lot more than.
What court is gonna hear this case and what law will they apply you want to head things off well before they get to that point litigation is a famous lose lose lose. People think. Only the lawyers make money even lawyers end up frustrated.
Sometimes at just how difficult a process. It can be and how expensive and time consuming. And not equitable so well before you ever end up in a court of law you want to have dispute resolution mechanisms in your partnership agreement to fend off having to go litigate or go to court so aside from governing law and in what forum will you will you litigate if it comes to that theres other things that you might see like mediation and arbitration and well get to those in a moment as well.
But were going to start even earlier than that because mediation has its place arbitration can be quite expensive not that much cheaper than litigation in a lot of cases. So were trying to come up with mechanisms for your partnership agreement for your partnership to fend off ever having to get to some of that traditional dispute resolutions stuff so its funny they call mediation arbitration alternative dispute resolution because 20 years ago when they or so when they came on the scene. They were the alternative to litigation.
But i think of them as traditional all those things mediation arbitration litigation. Were talking here about much more ad hoc fluid less expensive less time consuming mechanisms to resolve and fend off disputes.

a mediator is a neutral third party who makes a binding decision to resolve a conflict.-0
a mediator is a neutral third party who makes a binding decision to resolve a conflict.-0

Okay. So number one theyre saying that a the best defense is a good offense. You want to build in mechanisms to communicate with your partner right you want to force meetings.
You want to force monthly at the very least quarterly meetings. Where you and your partners sit down outside of the office preferably. But no matter where it is theres intentional time set aside to talk about how things are going to talk about the results in the company to talk about how the partnership is going is it meeting.
Everyones needs. This isnt time to get together. Its not your staff meeting not time to get together to talk about you know so and so over in accounting isnt performing should we hire someone new thats not what this is about thats time set.
Aside could be just an hour could be over a beer could be on a hike wherever it takes place it doesnt matter. But its got to be time again preferably in my opinion outside of the office. But where you talk about is this working for you hows it going is it meeting your needs so that time building that into your agreement to have set meetings like that is really really important to keep up communication.
If one partner is in charge of the finances that partner should be delivering to the other partners reports monthly reports heres whats going on each partner if youre not in charge of finance. Youre in charge of something probably usually founders and partners kind of have an area of responsibility so to report back about how things are going in their department. So feeding information to the other partners is important part of communication is spreading information being on the same page about whats going on so beyond that lets say that youre doing all the things to proactively.
Provide. Information and meet and talk about issues. Lets say a dispute pops up anyway so well before we get to mediation arbitration and litigation.
A couple things that you could consider building into your partnership agreement. One is a formal resolution meeting. This is really simple you build in a little paragraph in the partnership agreement that says if a dispute arises under this agreement something related to our relationship together as number of shareholders partners whatever your term one party will issue the others a formal notice of dispute so actually send a letter pursuant to the notice provision in the contract to say weve got an issue now.
The reason for that is to be very intentional and formal and set things in motion. Sometimes no matter how much you think youre communicating to someone if you dont kind of jump through that sort of a hoop they may not understand they have a serious issue on their hands. They may think.
Oh yeah. Yeah. Yeah.
Well get to that no big deal not sort of hearing. The message when you send a formal notice of dispute if thats what the contract calls for you step things up the formal resolution. Meeting is a meeting.
Where just the parties in the dispute. Meet and talk about the issue and try and come up with a resolution.

a mediator is a neutral third party who makes a binding decision to resolve a conflict.-1
a mediator is a neutral third party who makes a binding decision to resolve a conflict.-1

Theres no forced resolution. Theres no mediator. Theres no judge or arbitrator.
Its just now were getting serious now we need to figure something out can we do that together if that doesnt work you kind of go to the next step in the resolution mechanisms dispute resolution mechanisms so one that doesnt work real well for very large companies. But works great for smaller businesses is neutral arbiter. So what that is is a provision that says if we run into a dispute.
If we have a dispute together instead of going to litigation. Well engage so and so. And its usually a trusted neutral third party.
It can be a friend a business person a mentor. Its usually not lawyers and other professionals. Because we feel like not one to be in the middle of that particularly if im representing the company.
I dont want to be in something where i could be perceived as having to decide for one person or the other but you get the point and so theres different ways to draft the provision. But it basically says look we will contact the neutral arbiter tell him or her that we have a problem. Well each write our version of whats going on theyll interview to the extent they need to each of us.
Theyll spend a little bit of time you can even build in that they can hire their own counsel for you know up to a couple thousand dollars. You want it to be simple you want it to be inexpensive. But you want it to be effective.
So whatever mechanisms. You think you need to build in and then the neutral arbiter comes back and says heres my decision abide by it now usually that that decision isnt from a formal arbitrator or a judge. It isnt entered into a court of law you know one of the founders or partners could decide not to honor it.
But you would hope that they would say this is what we agreed to ill honor that decision and it could be a decision. The company should undertake it should be someway of divvying up responsibility or equity. Or money or something.
But neutral arbiter are a great inexpensive simple mechanism to hopefully get a resolution so now lets say youve tried formal resolution meeting neutral arbiter if it works for your particular business or if it doesnt whats next well then we go to those more traditional mediation arbitration litigation options mediation is a formal outside of the office in front of a trained certified third party mediator an opportunity to air the dispute and have the mediator try and come up with a resolution among the parties to dispute so sometimes the parties will be represented by their own legal counsel. Most often i would say that they are other times. They wont they share the costs usually of the mediator and the mediation facilities.
Which could run maybe a thousand dollars up to a couple thousand dollars. Could be a little less little more for a day in front of a mediator. The mediator will not issue.
A decision. Its not a forced resolution.

a mediator is a neutral third party who makes a binding decision to resolve a conflict.-2
a mediator is a neutral third party who makes a binding decision to resolve a conflict.-2

The mediator will often split up the parties and kind of work each side a little bit and try to come up with a shared resolution. So thats relatively inexpensive it happens pretty quickly theres no forced decision if none of these things work then youre in the realm of arbitration. Or litigation.
And those are usually an either or you either call for arbitration. Formally its required under the contract or its not in which case you end up in litigation. These are lengthier processes.
The arbitration will take place in front of certain arbitrating bodies. Theres all these arbitrated bodies. Theyve got rules and the rules apply to how how that the case is heard a decision is entered in the end in the arbitration.
And that decision can be entered into a court of law and has the binding you know power like a judges decision would arbitration started as an alternative to litigation. It was supposed to be cheaper and quicker. Its not in a lot of cases under simple rules.
It can be under complex rules like a triple a it can be very expensive a company. I was general counsel for went through one where we spent six million dollars in arbitration fees. Thats youre paying the judge or excuse.
Me the arbitrators on day. One each side is paying the arbitrators if youve got a three arbitrator tribunal. I can get very very expensive quickly so those things you understand why im saying these other options form a resolution neutral arbiter mediation are much stronger theyre quicker theyre less expensive but in the end if youre not able to come up with a resolution through one of those others a resolution that the parties honor then youve got to go to these.
Other options also in dispute resolution you will deal with governing law. So the governing law of a contract for a texas limited liability company is probably going to be texas. But if the members are in different states.
They can discuss that again its almost always in a partnership or founder. Agreement. Its almost always gonna be the law.
Where the company was was formed and is domiciled. But it could be different to that than that and so thats dispute resolution really important to figure out you try and fend off the problems before they occur if they do occur you try and get rid of them judiciously that lays the basis for the conversation. Well have about hitting the eject button so if none of this stuff works or you decide look theres no way im ever gonna get the point where this partnership is gonna be effective for me how do we get out of this that well talk about next time.
If you have any questions or comments about any of this if youve been through an arbitration or a mediation. If youve used neutral arbiter. Wed love to hear from you remember the way im crafting this series is to hear from you what do you want to hear more about what do you need more of what havent i covered properly.
So reach out send me an email drop a comment. I appreciate you stopping by .

a mediator is a neutral third party who makes a binding decision to resolve a conflict.-3
a mediator is a neutral third party who makes a binding decision to resolve a conflict.-3

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