Clients would do well to learn from those who have endured contentious and expensive business disputes. By understanding a few common sources of problems, clients can gain valuable insights and avoid making similar mistakes.
Three of the most common business disputes that can, with forethought and preparation, be avoided or at least mitigated are the following:
1. Contract disputes
Contracts are the cornerstone of all business relationships. From employees to vendors and everything in between, contracts are the blueprint for every business relationship from inception through termination.
Poorly drafted contracts are a breeding ground for business disputes. Minimizing the likelihood of business disputes is a function of:
- Clarity: Clearly defined terms; clearly stated obligations and liabilities.
- Specificity: Precision in spelling out deliverables, deadlines, and payment terms.
- Monitoring and Updating: Regularly monitoring contracts for compliance and modifying them, when and as needed.
Contracts tailored to a client’s needs can help reduce ambiguity and lessen the risk of disputes. That said, disputes can arise no matter how well drafted a contract may be. A contract drafted to the client’s specific needs is, however, more likely to survive a legal challenge than a contract with poorly articulated provisions.
2. Intellectual property protections and noncompete agreements
Often, a business’s most valuable asset is its intellectual property. A focused approach to protecting IP entails more than just obtaining and maintaining patents, copyrights and trademarks. A focused approach also requires the strategic use of noncompete agreements. The strategic use of noncompete agreements can, for example, help lessen the risk that a former employee wrongfully uses a client’s intellectual property to benefit a competitor.
3. Shareholder disputes
Conflicts among shareholders can severely impact any business enterprise. There is no substitute for shareholder agreements that set forth in clear detail provisions related to ownership, voting, and decision-making. Well drafted shareholder agreements serve to unite, rather than divide, shareholders. Poorly drafted shareholder agreements lay the groundwork for costly disputes.
While well drafted shareholder agreements do not guarantee protection from litigation, a client will more likely have the better side of the argument if he or she can come into court armed with a shareholder agreement that clearly articulates their position in the event of a dispute.