Legal mechanisms to resolve conflicts between partners
In the business world, disagreements and conflicts are inevitable.
Whether between partners, employees, suppliers or customers, a lack of agreement can arise at any time and have a significant impact on a company's operation and reputation.
However, having effective mechanisms to resolve these disputes is essential to maintaining the long-term stability and success of any business.
Conflict identification
Before addressing conflict resolution mechanisms, it is crucial to identify common areas of discord in a company.
These may include disputes over contracts, commercial agreements, intellectual property, labor relations, among others.
By recognizing potential sources of conflict, companies can be better prepared to proactively address them.
Disputes may be of a legal , technical , or strategic or business nature.
We can also classify them into:
- Ordinary: allow the parties to continue their cooperation.
- In those that mean the complete breakdown of collaboration,
- And those that refer to the articulation of the termination of the joint project.
Mechanisms to resolve the lack of agreement in a company
The lack of agreement regarding the direction and management of a company in key matters can cause serious conflicts and blocking situations that harm the company's value generation.
Therefore, a prevention strategy should be adopted aimed at reducing the likelihood of disputes arising, minimizing their implications, and determining mechanisms for resolving those that cannot be avoided.
In many cases, conflicts can be resolved informally through open communication and negotiation between the parties involved.
This approach may include face-to-face meetings, mediation facilitated by a neutral third party, or even the implementation of workplace conflict resolution programs.
The advantage of these methods is that they are usually faster and less expensive than formal legal processes.
In other words, we can resolve disputes by resorting to mediation, arbitration, or the decision of an expert.
However, when conflict prevents partners from continuing to work together, it means that there will be a complete breakdown, and therefore, someone will have to "leave" the project.
Therefore, there are clauses aimed at regulating the exit of the partner (buy and sell options, Russian roulette or Andorran pact…).
These should be included in the parasocial agreements as conflict resolution clauses such as duel clauses – or shoot out clauses.
What are shoot out clauses?
This clause regulates those situations in which it is impossible for both partners (coalitions of partners, in this case) to continue working together and one acquires the property of both so that they no longer coexist in the direction and decision-making.
These clauses require you to buy or sell.
They represent a drastic solution, but also equitable as both parties have the same guarantees to leave or stay, and it will be with the activation of this preventive mechanism that it will be decided who of the two will do it.
Other solutions for when there is conflict between partners
Different auction systems can also be applied, such as the Dutch - or Sale Shoot-out - (the initial price is the highest and bids go down until one of the partners is willing to pay above the last bid); among others.
Likewise, depending on the circumstances and the composition of the share capital, it may be of interest to agree to the exercise of a call option (right to buy the share or stock) or a put option (right to sell our share or stock).
Litigation as a last option
In cases of serious disputes or when other methods of conflict resolution have failed, litigation may be necessary.
Litigation involves taking the case to court, where a judge will make a final decision based on the evidence presented by both parties.
Although litigation can be costly and lengthy, it is sometimes the only option to resolve complex or legally significant disputes.
Conclusions on legal mechanisms to resolve conflicts between partners
In summary, effective resolution of business disputes is essential to maintaining the stability and success of a company.
By identifying sources of conflict and using appropriate mechanisms to address them, companies can minimize negative impacts and strengthen their internal and external relationships.
Whether through informal negotiation, arbitration, mediation, or litigation , having a clear plan for resolving disputes is fundamental to the long-term growth and sustainability of any business.
RRYP Global , lawyers for Shareholders' Agreements.
