Challenges in Closely Held Businesses

Challenges in Closely Held Businesses

Closely held businesses have the advantage of being run by a small, trusted group of people. Typically these are family members sharing a common goal and values. But any business can experience internal conflict and disagreements which can threaten the enterprise. A Connecticut business attorney can help devise risk strategies and agreements to manage disputes and operate the company effectively.

As opposed to publicly traded companies, a closely held company is composed of a small number of owners and operators. Although this structure is beneficial in many ways, it can lead to a number of unique challenges. Personal conflicts – caused by differing opinions, egos, and goals – tend to be more pronounced. With fewer people in charge compared to larger businesses, these clashes can threaten essential operations.

These are some of the problems that many closely held companies experience:

  • Compensation and benefits disparities
  • Minority shareholder oppression
  • Unequal treatment and access to business assets and records
  • Marriage, divorce, and other family changes
  • Conflicts of interest and self-dealing
  • Decision-making issues and board or management impasses

Addressing internal business conflicts starts with preventing them in the first place. Your Connecticut business attorney can draft operating, partnership, and other agreements to help with this. These agreements should be entered into at the time the business is first formed. However, they can be adopted at a later date if necessary. Some of the objectives of these agreements are:

  • Structuring the governance of the business
  • Setting leadership roles, boundaries, and expectations
  • Establishing the company’s mission
  • Addressing employee and management problems that may arise
  • Creating a succession plan for the business

Accomplishing these goals will help provide a road map for efficiently addressing many issues that could come up. Some companies operate without written guidelines such as these, and struggle with conflicts that are likely already threatening business operations. Although no agreement can fully anticipate every contingency, there are advantages to reducing policies and rules to writing:

  • Avoids allegations of bias or arbitrary treatment
  • Sets the ground rules early on, which will potentially deter bad behavior
  • Documents steps that are (or may be) taken to handle conflict
  • Creates a paper trial that can later be used to defend the company’s actions
  • Establishes a level of trust among employees, operators, and managers

An experienced Connecticut business attorney can meet with you to discuss how best to implement these objectives. Every company is unique, so a one size fits all approach is not only not recommended, it likely won’t work. To tailor an agreement to your company, your attorney will need to know details like how your business is operated. Only then can an attorney craft an effective operating framework for your company.

Before you meet with your Connecticut business lawyer, there are a number of important documents you should review. If your company already has written agreements in place, check over those to identify weaknesses in the existing structure. Take a look at any past complaints or issues originating either outside your business or from within. Finally, point out any known threats – actual or potential – to the company. An example would be disputes between operator or employee spouses that could turn into a divorce. Understanding everyone’s role and performance in the company will help your lawyer better structure governing agreements.

SERVING THE NEEDS OF SMALL AND CLOSELY HELD CONNECTICUT BUSINESSES

At Aeton Law Partners, we understand the value of your business and what you wish to achieve with it. Internal conflict can get in the way of those dreams, so we’re here to help. Let us work with you to pave the way for efficient and effective operations of your company. Give us a call today to schedule a consultation.

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