Operating a business venture is undoubtedly rewarding, yielding profit and a means of livelihood when run effectively and efficiently. It could also be a venture riddled with some unforeseen happenings that could spell doom for the owners and other stakeholders. One such occurrence is the emergence of business disputes. Disagreements can be fuelled by ignorance, lack of integrity, varying viewpoints, unfair practices and infringements on other people’s rights, and a whole host of other situations.
While some conflicts may be simple and easily resolvable through negotiation or alternative dispute resolution mechanisms (mediation or arbitration), there are specific conflicts that must end up in the courtroom. Although litigation is usually the last resort in business conflict resolution, it is the only option in some instances, despite its costliness.
Identifying issues that necessarily have to go through legal remedy may be tricky, particularly knowing there are less costly options. The question now is, when is cost consideration not a valid argument in business dispute resolution? The answer to this question is what this article seeks to provide.
Understanding Litigation in Business Disputes
Litigation involves resolving disputes through the court system. It refers to filing a lawsuit, setting forth evidence and having a judge or jury give a verdict. This method of dispute resolution usually leads to strained relationships between the parties involved and opens up sensitive business secrets to the public.
Types of Business Disputes That May Require Litigation
- . Breach of Contract
Contracts are very important because they constitute the foundation of business relationships. They spell out what the different parties are expected to do or achieve. However, breaches of contracts are very common and may render devastating effects to your business. A breach occurs when one party fails to perform its obligation, such as delivering goods or services on time and to the agreed quality or standard.
For instance, you can have a contract with a supplier to be provided with materials necessary for production by a certain date, but he breaks this commitment, causing you loss of time and finances. In such a scenario, litigation is possible to enforce terms of the contract and retrieve damages incurred.
- Intellectual Property Infringement
It is your fundamental right to protect the intellectual property of your business so as to maintain a competitive edge and ensure that the innovation, branding, and other creative works of your business are not utilized by other parties in any way. Intellectual property infringement refers to someone using your protected material without a permit—in other words, making a copy of your patented invention or using your trademarked logo.
For instance, a competitor begins selling a product that is surprisingly similar to what you have patented. In addition to attacking your market position, it is an infringement upon your right. In such a case, litigation is your surest bet to stop illegal use of your Intellectual property and recover damages.
- Partnership and Shareholder Disputes
Business partnership and shareholders’ disputes can stem from disagreement over sharing of profit, policy drive of the business or breaches of fiduciary duties. Such conflicts of interest can spell doom for the business as the conflicting parties are critical stakeholders whose collective decision is needed for the day to day running of the business.
For example, if one of the partners in your Limited Liability Company (LLC) is siphoning off company funds for personal use, this breach of fiduciary duty can have adverse effect on the business even causing it to fold up. A lawsuit can be initiated against such an untrustworthy partner so as to arrest the situation and recover misappropriated funds. It is however necessary to seek professional advice from a qualified business attorney when resolving such complex issues.
- Difficult Employer-Employee Rifts
Most employer-employee disputes bother around discrimination, wrongful termination of appointment and issues of harassment. In generality of cases, these issues are settled internally through negotiation and mediation. However, if such disputes worsens to the point of having a direct toll on business productivity and all negotiations have failed, litigation becomes the only option available.
- Fraud and Misrepresentation
Fraudulent activities and deliberate misrepresentations can dent the reputation of a business entity leading to loss of clients and resources. In a situation where you enter into a business deal based on false information and it caused you huge losses in terms of finance and reputation, taking up legal arsenal against the fraudulent party will be a justified action.Aside from the business losses that can occur, fraud is a criminal action that not be allowed to thrive in the society.
- Debt Collection
Unpaid debts can significantly affect the cash flow and overall financial health of a business entity. In order to maintain your client base, the ideal step to take is to send constant reminders and negotiate with the client. However, if the fund involved is huge such that the health of the business is beginning to fail and no serious commitment is coming from the debtor, seeking legal intervention will not be out of place. A court judgment can compel the party involved to offset the debt with interest and the cost of legal fees, depending on the findings of the court.
Conclusion
While litigation should always be considered a last resort, there are some business disputes where legal action is necessary to protect your interests and ensure needed recovery of losses. Breach of contract, intellectual property infringement, partnership and shareholder disagreements, employer-employee rifts, fraud and issues of unpaid debts are common instances where courtroom intervention is needed. Getting professional advice and representation from a experienced small business attorney is vital for determining the weight of your case and possible favorable outcome. Also, it might be necessary to create an LLC or corporation so as to have a greater legal standing that offers significant protection and guarantees easy and faster access to justice. Understanding when to consider litigation and having the right legal support can make all the difference in safeguarding the future of your business.
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