Corporate and family disputes in a family business

Corporate conflicts are those that affect the governance of a company, or that arise when it or one of its representatives causes an injury to the partners, the company itself or third parties. Our Legal System has very varied responses to this type of conflict, although the solutions provided by the Capital Companies Law stand out.

For its part, family conflicts are those that arise between relatives. They usually remain in the private sphere of those involved. However, the particular nature of the family business can cause these conflicts to affect the business.

So, a family conflict can turn into a corporate conflict when it occurs within the framework of a family business. And that is why it is important to know the type of disputes that society can face, their consequences and how to prevent and resolve them.

Frequent conflicts in the family business

We start from a differentiation between corporate conflicts and family conflicts, which in the case of family businesses can blur their limits or jump from one area to another with ease.

As the lawyers specializing in corporate law at Forcam Abogados comment, the most common corporate conflicts have to do with the confrontation between majority and minority partners. These situations usually lead to the blocking of the company, which can be especially serious as it constitutes a cause for the dissolution of the company. 

This kind of conflict is rare in first-generation family businesses, in which only the founding partners participate. However, after each generational change, the company's shares will gradually disperse. Which tends to suppose that the control of society is focused on different branches, which each time have a more distant link to each other.

This can lead to the emergence of different strategic visions that pit family branches against each other. Also, to the majority shareholders trying to force the minority out to take full control of the company. For example, establishing abusive voluntary reserves, increasing capital unnecessarily or denying the distribution of dividends.

In these situations, it is common for minorities to adopt boycott strategies, challenging actions and decisions to defend either their rights or their rights (for example, trying to obtain certain prerogatives). 

For their part, family conflicts that affect these types of companies usually have two sources. They generally derive from inheritance or matrimonial processes, which involve the entry of third parties (political or biological relatives) to the company. But it can also happen that family quarrels lead to harassment strategies. 

Answers of the Legal System. In particular, Capital Companies Law 

Our Legal System has a wide range of responses to corporate and family conflicts that may arise within the family business.

For the most serious cases there is the criminal law, which is reserved for the conviction of criminal actions. Given that it is a last-resort resort, it is not usually frequent to resort to this type of solution.

In most cases, civil responses will be used, which are responsible for regulating, among others, inheritance, matrimonial and contractual aspects. Therefore, this is usually the typical way of conflict resolution in the family business.

Within the civil responses we can distinguish those that are preventive (signing contracts, pacts, agreements, protocols, marital agreements, granting of a will ...) from those that are reactive (mainly precautionary, declarative or executive demands aimed at resolving obligations, forcing their performance or indemnify damages). 

In particular, the Capital Companies Law establishes a system of shares that allows specific responses to corporate conflicts. These allow to challenge agreements of the governing bodies, invalidate the transfer of shares, demand the responsibility of administrators and even request the dissolution of the company.

Alternative dispute resolution methods 

The reactive measures that we have discussed are enforceable before the competent Courts in each case. They will be made effective following the procedures established in the applicable procedural law and will be resolved by means of a Sentence that obeys the interpretation of the applicable law.

However, although this system guarantees a certain level of justice and the obtaining of executive decisions, it is not always satisfactory. Mainly because it means facing high temporal, economic and emotional costs. This often leads to the fact that the situation is resolved but not the conflict itself.

That is why preventive solutions are preferable. That is, the adequate planning of the family business to shield it as much as possible from family or corporate vicissitudes that could affect it. 

But what happens when preventive solutions are insufficient? Is there no other recourse than ordinary jurisdiction?

Not really. Our Legal System admits recourse to at least three alternative dispute resolution systems. These generally have significant advantages over entering a lawsuit. 

Conciliation 

It consists of the appearance of the parties in conflict before an impartial third party. Those will expose their positions to try to reach an agreement, without the third party being able to help. Precisely for this reason it is a system that is little used, since it does not guarantee that an agreement will be reached, and the presence of the conciliator is usually not very productive.

Mediation

In this case, the impartial third party will have an active attitude, helping the parties to understand each other and reach an agreement. It is an entirely voluntary process. Thus, the parties will only participate if they want to do so, they may abandon it at any time and the content of the agreement will be that which they determine. 

Although it is not appropriate for cases in which there is no real will to reach an agreement, in general it is an ideal medium for family conflicts. And this because it prioritizes understanding and collaboration, which results in more realistic and beneficial commitments for the parties and greater care for personal relationships. 

Arbitration

In this case, the impartial third party is in charge of deciding by means of an arbitration award. The referee is usually an experienced professional, which facilitates a more technical and specialized judgment. This makes arbitrage the most widely used method in the commercial sector. 

Over the other methods, it has the advantage that the parties know that they will get an answer to their dispute. However, its disadvantage is that the answer will be that of the referee, so they will have less control over its content, which may not satisfy them.

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