Closely-Held Corporations and Small Business Disputes
Small Business Disputes and Dissolution
Many small business, including family businesses, qualify as closely-held corporations. When there is trouble in a small business – particularly a family business – it can be very personal. Family businesses in particular are relationship-driven. Oftentimes, employees – even officers and owners of the company – are there because they are family and not necessarily because they are qualified for the position. Human nature being what it is, it is rare that a less valuable member of the organization sees his or her role that way, or attributes his or her presence as an attribute of family rather than ability.
Business breakups in this setting are especially bitter, and that bitterness translates immediately into additional costs and disruption. This happens on two levels:
- The dysfunction in the operation of the business brought about by the personal nature of the disputes directly impairs the business’s ability to operate.
- The resources devoted to fighting – e.g. legal fees, accounting and expert witness fees – are disproportionately high.
If you work for a small or family-run business and are experiencing problems, the Michigan business dispute attorneys at Seikaly, Stewart & Bennett are prepared to pursue your cause.
Non-existent Contracts and Compensation Irregularities
Making matters worse, the legal relationships between the parties are often ill-defined. Important financial arrangements, including business ownership and basic rights in the business, may have been established on a handshake years earlier and without formal contracts.
Because of the business’s informality and family-driven business decisions, there are frequently irregularities in how people have been compensated. Business owners may have charged substantial personal expenses to the business, creating potential tax problems more likely to come to light during a public business dispute. Family members may be on payroll who are generously compensated for doing little or nothing. Cars and a credit card to keep the vehicle running may have been provided to family members who do not use those vehicles for business purposes. All this may escape the attention of the IRS until the fighting begins and business war has been declared.
Representing individuals in Michigan small business disputes requires a keen appreciation of the family dynamics involved, not merely the legal principles that apply in court. The lawyer needs to understand the parallels between dissolution of a family business and a divorce, and also comprehend the psychology in helping the parties to fashion a settlement.
Deciding Business Disputes Through Settlement or Trial
Judges frequently encourage settling small business disputes, including those between closely-held corporations, outside of court. Generally this is a good thing, but it means that the workup of the case must also proceed differently. In mediation or facilitation, the “who is right” part of the case receives less emphasis than valuation issues and how to resolve the financial disputes without killing the business.
When settlement is not possible, the “who is right” part of the case becomes critical. This is especially true in shareholder oppression cases, in which the minority shareholder will get nothing if he cannot prove his rights have been significantly violated. If he does prove oppression, he may be able to force the company to buy him out. If he proves the majority wrongly took money or benefits for themselves, his buyout will be increased by his share of what was wrongly taken.
The law in shareholder oppression cases boils down the fact that the majority shareholders, who generally are the controlling officers of the company, have an obligation to act in the best interest of the company and not merely themselves. Anything they do they can be shown to benefit themselves at the expense of the company or the other shareholders is going to be suspect. The burden of proof will fall upon the majority shareholder to establish that the obligation to first protect the interests of the corporation was not violated.
Lawyers need to be chosen not just on the basis of how well they know the law and how effectively they advocate their positions in court, but also how well they can tailor those skills to fashioning a win-win situation for the opposing parties. At Seikaly, Stewart & Bennett, our Michigan business dispute lawyers are skilled in just this area and are prepared to reach a beneficial settlement.
Call Seikaly, Stewart & Bennett for a No-Obligation Consultation
If you are a partner in or a partial owner of any Michigan closely-held corporations, the business dispute attorneys at Seikaly, Stewart & Bennett can help resolve any sensitive issues that have arisen. To schedule your no-obligation consultation and learn about recovering damages, please call 866-671-8115 or fill out our contact form.