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As a business co-founder, you may find that your relationship with other co-founders has soured. This can be for a number of reasons. In some cases, you may be tempted to separate ways with your team or terminate your relationship with your co-founders outright. However, before you throw in the towel, you should consider exploring possibilities for resolving the conflict. This article will highlight some of the key options that are available to deal with a co-founder dispute.
What is a Co-Founder Dispute?
You will likely end up in a disagreement with a co-founder at some point. Even if you do not anticipate from the outset that you will face any problems. A co-founder dispute is when you are in a dispute with at least one of the other founders of the business. Often, co-founder situations are treated differently from normal disputes because co-founders will typically have a pre-existing close relationship. This relationship will almost always have a legal component largely contingent on the business structure your business employs.
As a result, it is important to prepare for co-founder disputes by familiarising yourself with early dispute resolution methods. This can help protect any personal relationships with your co-founder. It also minimises the effect of disruption on your business.
Embracing Conflict in a Co-Founder Dispute
While you may think that it is best to avoid conflict altogether, it is often much better to embrace conflict. By having a positive and open attitude towards disagreements, you will be much more likely to work towards an agreeable solution with the people that you are in a conflict with.
The first thing that you should have in place before a potential co-founder dispute is an agreement in writing. This will clearly set out each of your roles, the work distribution and other responsibilities. This can take the form of a founders agreement, which can touch on the scope of your individual roles and it can even outline some dispute resolution methods in the case that you have issues with your co-founder.
At this point, it is also worth considering the structure of your business. As a partnership, your rights and responsibilities should be outlined in your partnership agreement. Generally, the agreement should set out any pre-determined methods for resolving co-founder disputes. In a limited company, however, the law is less flexible on resolving disputes. This is because the nature of your relationship depends on company law and the terms of your articles of association. You may need to hold a series of board resolutions and general meetings before arriving at a determinative solution.
In any case, you will want to address the conflict head-on while also doing your best to understand your co-founders’ perspectives. Failing to address the problem directly and openly can mean that small things escalate. This will jeopardise the foundation of your relationships with the other co-founders. You may find that the best course of action for your business is a middle way between your view and your co-founders’ view.
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Communication in a Co-Founder Dispute
Given the amount of time that you would have put into your company with your co-founder, it is likely that both of you have significant experience of your company and have a good idea of how to take it forward. You should keep this in mind when discussing problems. Do your best to argue in a collaborative way that is based on strategy and financial metrics rather than emotions.
Ultimately, you should refer back to your general business plan if your co-founder dispute is about strategy. As a new business or startup, it is also important that your co-founder dispute does not affect your employees. Keeping your team motivated is a highly important factor in the success of new ventures.
However, in some situations, you may find that simply discussing problems is not helpful at all. If you believe that your co-founder is not receptive to your issues at all, or there is a more significant problem with your personal relationship, then you may want to consider more formal methods of dispute resolution. For example:
- mediation;
- arbitration; or
- litigation
Mediation in a Co-Founder Dispute
A professional mediator is someone who will help you craft a resolution to your problem that both parties consent to. Hiring the services of a professional mediator can help you communicate more productively with your co-founder if your relationship has soured. At the same time, a mediator can help reach a mutually agreeable solution on a more serious point of disagreement. This can be good practice on effective communication, which can help strengthen your relationship long-term.
Arbitration in a Co-Founder Dispute
If there is no chance of resolving the co-founder dispute through communication, then you may wish to opt for arbitration. To be able to arbitrate on an issue, there must be a serious legal problem between you and your co-founder. Arbitration is often preferred to litigation because it is often cheaper and less time-consuming whilst still producing a binding decision, unlike other alternative dispute resolution methods. You can force an arbitration only where you have a pre-existing agreement in place entitling you to do so. For instance, if your business is run as a partnership and you have an arbitration clause in the partnership agreement.
Litigation in a Co-Founder Dispute
Absent an enforceable term compelling your co-founder into arbitration, your only option may be to claim against your co-founder. This is the nuclear option and you should only pursue it where relationships have broken down and you do not expect them to recover. Furthermore, litigation is expensive and time-consuming. The outcome will depend on the strength of your claim.
Separately, the nature of the claim you are entitled to bring in litigation often depends on the legal structure your business employs. For instance, partners in a partnership may sue over a breach of the partnership agreement — i.e., a contract breach. Company shareholders may be able to claim under specific laws only available to shareholders. The nature of the claim will in turn determine the remedies you may obtain if the court rules in your favour.
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Key Takeaways
If you are in a co-founder dispute with a co-founder, it can be a good idea to embrace conflict and try to deal with it early through appropriate communication. However, sometimes the issue may be too great to resolve internally. Instead, you may wish to opt for more formal dispute resolution processes, such as mediation, arbitration, or litigation. Your options will depend on the nature of your dispute and the legal structure through which your business operates.
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Frequently Asked Questions
Mediation is where you hire a mediator to negotiate a settlement between you and the other party to a dispute. Both you and your co-founder must consent to mediation. You cannot force another party into mediation.
Arbitration represents a middle ground between mediation — which is entirely consensual — and litigation — which obligates one party to defend a claim made by another. You can force a co-founder into arbitration, but only if they have previously agreed to do so, such as through an earlier contract. If there is no prior agreement in place, you cannot force the co-founder into arbitration.
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