Running a small business can be hugely rewarding, but it doesn’t come without its share of challenges. From juggling day-to-day operations to managing finances, small business owners often find themselves stretched. This means that dealing with legal disputes can place additional pressure on already limited resources. Unlike larger firms, smaller enterprises are often less equipped to absorb the time and cost that legal conflicts can bring.
Disagreements can arise in many areas of the business and if left unattended, can quickly escalate, leading to lost time, financial strain and damage to the business’s reputation.
By becoming aware of the types of disputes that often affect small businesses, owners and key stakeholders can take steps to limit their impact. It’s also helpful to have a plan for how to deal with them if they do arise.
In this article, we outline the most common disputes that small businesses encounter. We also look at ways to reduce the risk of these disputes occurring, and explain how matters can be resolved should litigation and dispute resolution become necessary.
Disputes over contracts
Poorly drafted agreements, which might include the company’s Articles of Association or service contracts that result in unmet expectations, are a common cause of contract disputes. These conflicts may involve late payments, failure to deliver, or unclear terms. To reduce risk, businesses should always work with written contracts that clearly outline responsibilities, timelines and payment terms. Regular reviews and written confirmation of any changes are also recommended.
If disputes arise, early negotiation or mediation often avoids the need for court. Where necessary, adjudication, arbitration or litigation may follow. Including a dispute resolution clause in your contracts can save time and cost later on.
Shareholder disputes
Disagreements among shareholders, or between shareholders and the company management and other stakeholders, will often centre around business decisions, profit distribution or perceived breaches of duty. These disputes can be disruptive and damaging to both relationships and the business itself.
The best way to avoid conflict is to have a shareholders’ agreement in place from the start. This should cover decision-making processes, exit strategies, voting rights and what happens in case of deadlock. If disagreements occur, solutions may include buyouts, mediation or legal action, depending on the seriousness of the issue.
Employment disputes
Staff-related issues, such as unfair dismissal, discrimination, pay disagreements or disputes over restrictive covenants, can lead to time-consuming and costly employment tribunal claims.
These risks can be managed by having clear contracts of employment, consistent HR policies and regular staff training. If disputes arise, early intervention, internal grievance procedures or legal advice can help resolve matters swiftly.
Commercial property disputes
Issues relating to rented business premises often include lease disagreements, rent arrears or disputes over repairs and are common in small businesses, particularly when leases are not fully understood at the outset.
Prevention involves thorough lease negotiation in the initial stages of a commercial rental agreement, creating a clear understanding of obligations for both parties. Ongoing communication between landlords and leaseholders can help to prevent misunderstandings and escalation.
Boardroom disputes
Strategic disagreements between directors, which are often linked to governance, fiduciary duties or conflicting visions, can paralyse decision-making at a business’s senior level. These disputes may damage investor confidence or lead to resignations and legal fallout.
Avoiding boardroom conflict involves having clear governance frameworks, defined roles, and agreed procedures for major decisions. If matters escalate, options include mediation, independent review or, in extreme cases, legal action to remove a director or resolve the deadlock.
Finding a resolution to business disputes
Disputes within a business can quickly escalate when communication breaks down or preventative measures fall short. Lawyers specialising in dispute resolution will take time to understand the situation fully, listen to the concerns of each party involved and work towards a practical and effective solution that aligns with your interests. They aim to resolve matters with minimal disruption to day-to-day operations, allowing business owners and stakeholders to focus on running the business.
If you have an interest in a small business and are facing internal conflict, early preventative steps can be effective at stopping issues before they become larger conflicts. However, if matters do escalate, legal professionals can guide you towards a resolution that protects both your business and your long-term interests.