You and your long-term friend/business partner have operated a manufacturing company for the past 20 years. You have 30 employees and also a number of minority shareholders in the business. You and your business partner are the majority shareholders of the company. The manufacturing company has been very successful and provided products internationally. However, both you and your business partner have opposing views on how the future of the company should look. Should you manufacture your products off shore in a foreign country or should you support the local economy?
You decide that the bottom line is not the only thing that is important and you want to support the local economy. Your business partner does not agree. Due to the loosely structured Operating Agreement that you have, it appears that you are at a deadlock and cannot make decisions essential to the operations of the company.
If you vote to keep manufacturing local and your partner votes to send it off shore, you cannot come to the required vote to make a decision either way. As a result, your business partner sues you, claiming among other things, that you are breaching your fiduciary duty as an officer and shareholder of the company.
You consult with a lawyer who says in retrospect that the Operating Agreement should have been structured differently, but that is behind you. Your next step is to put together your best case for a trial, which could be very time intensive and costly, in addition to infringing on family time and interrupting the operations and success of your current business or creating another business.
Your lawyer tells you that you may have a good chance to win but you should really consider mediation. Why do that?
- The attorneys’ fees and costs are much less if you settle;
- You’ll have control of the outcome through the mediation process, which is a voluntary process by which you can reach a settlement;
- You will not be emotionally engaged in a dispute; and
- You will be free to go on with a solution for the business or pursue an alternative business opportunity.
The moral of the story is: Plan ahead. If you are sued, realize you have a number of alternatives, one of which is mediation and resolution over which you have control. It is important to consult a lawyer on these matters.
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