Answering the Million Dollar Question: How Can You Prevent Business Disputes?

In my experience, I’ve found that many business owners do not consider the possibility of a business dispute in advance. As a result, they are ill prepared when one does happen. And worse, a dispute is more likely to happen because the owners have not taken the necessary steps to avoid them.

That is why I’ve compiled the following list of steps to take to protect yourself and your business. This overview is not exhaustive, so please check back as I continue to post about this important topic.

Select a business entity that limits your personal liability. Choosing the appropriate business entity can protect you from future debts or judgments against the company, except what you have invested in the company and what you have personally guaranteed. Often, people who are just starting their business will be required to give a personal guarantee in order to get credit. Whenever possible, remove personal guarantees from loan renewals and credit arrangements so that you are not liable.

File all of your business name registrations. If your company does business under an assumed name, you must register it. Failing to do so is a crime. In addition, a company that has done business under an unregistered assumed name cannot recover a judgment in a court of law until the name is registered.

Have buy-sell and employment agreements in writing. A buy-sell agreement covers what happens when there is a change in circumstances of one of the owners, such as a death, disability, or divorce. This agreement helps ensure that the owners of the company do not end up in business with owners they did not expect or want. An employment agreement outlines the relationship between an employer and employee. This agreement can prevent employees from leaving and taking business with them.

Have bylaws, and follow them. Bylaws, typically created at the outset of a company’s formation, govern the operations of the company. It is important to have a paper trail showing that your company follows its bylaws. Having bylaws and following them can help avoid allegations of fraud and personal liability.

If you have questions about avoiding potential disputes, please feel free to give me a call.