What Should I Do if My Startup is in a Dispute?

Running a startup business is hard work, and things may not always go your way. As a startup, you may find yourself in a dispute. For example, disputes may arise with:

• customers or employees;
• other businesses you are dealing with; or 
• your co-founders. 

To survive, you should embrace conflict and prepare your startup for potential disputes. This article will explain some common dispute resolution methods, and it will also touch on which situations will be most appropriate for each method.

What is a Dispute?

A dispute is a broad term referring to the types of conflict you will deal with during your business’s life. Business disputes are often contractual. An example of a common problem is a dispute over the non-payment of a debt.

If you are in a dispute, you will want to ensure that you resolve it quickly and efficiently. Long-term disputes can:

• hinder cash flow; 
• damage your business brand; and 
• slow down your operations. 

This can be catastrophic for the growth of startups because your business is the most fragile at its early stages. As a result, you will want to develop an effective dispute resolution strategy. 

What is Dispute Resolution?

Dispute resolution refers to the methods through which you can solve a conflict. There are four main categories of dispute resolution, which are:

• negotiation;
• mediation;
• arbitration; and
• litigation.

Negotiation

Negotiation involves meeting with the other party and talking through your conflict. This is an informal process and allows you to set the tone of the conflict resolution process. 

Negotiation is a good starting point in a dispute for a startup business. Primarily, negotiation costs very little money and has no extra administration time. Therefore, you do not have to jeopardise your cash flow with legal costs. 

Many disputes within a startup can also be resolved through negotiation. Mild co-founder conflicts on topics such as how future shares will be distributed are a common problem. You can often effectively resolve these through negotiation. 

Mediation

In some instances, however, negotiation will not be enough to resolve your startup dispute. The other person may make unreasonable demands, or there may exist bad faith between you and them. This can occur in co-founder conflicts and with other businesses you work with. 

In these situations, you may wish to hire a professional mediator. A mediator is a person who is trained in helping people in a dispute to settle. A settlement is a mutually agreed solution to the problem and can take different forms depending on the dispute’s context.

Mediation could be a good way of resolving your dispute if negotiation fails. It is a reasonable option for all disputes, and most courts require you to try mediation before you litigate.

Arbitration

You might opt for a more formal solution if mediation and negotiation fail. One method of doing so is arbitration. Arbitration is where you hire an independent arbitrator who decides your dispute on your behalf. In many ways, this is very similar to going to court.

However, arbitration is unique in some important ways. It is usually cheaper and quicker than going to court. The evidence process for arbitration is also less strict than going to court. Further, the findings of arbitration are almost always kept confidential.

As a result, arbitration can be an effective solution if your conflict is serious and cannot be resolved through an exchange of words. 

Litigation

Litigation is the process of taking your case to court. This is similar to arbitration, except your case will be heard before a judge instead of an arbitrator. This guarantees that the quality of the decision will be high, and it also allows the parties to appeal the decision if they wish. 

However, litigation involves higher costs and takes longer than alternative dispute resolution. As a result, choosing to litigate can be very dangerous as a dispute resolution method for your startup or early-stage business. This is because it can distort your business’s vision and growth. 

If you consider taking your startup’s dispute to court or arbitrating, you should seek professional legal advice. 

Key Takeaways

As a startup business, you must be very careful in managing any disputes you get into. A long-term dispute can be detrimental to your business growth, so you want to resolve the problem as cheaply and quickly as possible. 

Some common ways of resolving a dispute are negotiation and mediation. However, you may want to use arbitration or litigation instead for more serious problems. If you have any further questions about dispute resolution, LegalVision’s experienced dispute resolution lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions