Business Divorces

by Gilda R. Turitz

Abstract:

A “business divorce” concerns claims and disputes that typically arise in a privately held business with at least two owners, leading to termination of the disputants’ relationship. Such businesses may take the legal form of a closely held corporation, a partnership or a limited liability company, but generally function as partnerships.

The issues that can cause the business divorce and land the parties in arbitration are often grounded in the company’s formation. … [C]losely held businesses often are characterized by varying natures and degrees of initial contribution and continuing obligations to capitalize the company, coupled with restrictions on transferability and/or ability to cash out one’s interest. Disputes are often exacerbated by these factors, especially lack of liquidity and possible difficulty in valuing an interest in the business to buy out an unhappy partner.

Such businesses often may be held by one or more generations of family members which relationships may complicate the business conflicts that arise.

Arbitration provides a uniquely advantageous forum to resolve a business divorce among owners for several reasons, including the ability to select an arbitrator with expertise, privacy and confidentiality, streamlined discovery, and an expeditious process to address whether all necessary parties are included in order to afford the relief sought.

Arbitration is a uniquely effective vehicle to resolve claims among members of such businesses because it offers privacy, efficiency of information exchange among the parties, adjudicators with expertise in the industry or subject matter at issue, and relative speed to conclude the proceedings as compared with traditional court litigation.

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