The Small Business Association applies different
standards on what qualifies as a "small business" depending on the industry; but realistically, most people think a small business is a few dozen individuals at max. Its common to hear about business litigation amongst owners of small businesses. There is frequently a lack of paperwork to guide the owners. As a business grows and progresses, common goals and initial ideas between the founders ultimately fade from memory. Small businesses tend to forgo putting agreements in writing and don't keep good financial records. As a result, disputes can easily arise and consequently turn to business litigation
New startups are susceptible to a lack of paperwork because entrepreneurs want to move quickly from concept to product. A startup begins with a couple of individuals who have an idea. The idea quickly turns into a product, and the business is underway. Percentage of overall business ownership interest and ownership in intellectual property are typically not discussed. Valuing work product versus monetary capitalization can be difficult after-the-fact. Buy-sell agreements, employment agreements, confidentiality agreements, memorandums of understanding, and intellectual property licensing agreements are all important documents at the beginning of a startup. Failing to outline the key details of a small business arrangement will quickly lead to disputes and litigation.Business litigation
is a process of resolving disputes between parties. The litigation process begins with a lawsuit that is brought before a court with proper jurisdiction. Litigation is the entire process from filing the lawsuit to conclusion of the lawsuit -judgment or settlement. Learn more about responding to a lawsuit in Sacramento
. For example, business litigation typically includes a claim for breach the contract, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, unfair competition, or tortious interference with business relations. There are a whole slew of other claims that can and are often included in business litigation
. Litigation can be emotionally exhausting and financially devastating.
The best way to avoid small business litigation is to:
- Write down agreements
- Communicate regularly, discuss potential issues, and watch the tone of the communication
- Hold regular meetings, keep meeting minutes, and have owners sign off on the meeting minutes.
A great way to reduce potential business litigation costs is to preemptively sign an agreement to mediation or arbitration. The parties can preselect a mediator or agree to binding arbitration with one to three arbitrators. Mediation is intended to resolve any business disputes before they get out of control. Learn more about alternative dispute resolution with the Sacramento County ADR Information Package