Common Disputes Small Businesses Face and How to Avoid Them

For small businesses that are still establishing themselves or moving through growth stages, resources are often stretched and company structures may not yet be firmly in place. In these circumstances, disagreements between stakeholders can emerge over how the business should be run, what decisions should be prioritised, and how responsibilities should be managed. Such disputes can disrupt both the daily operation and the broader progress of the business.

This guide examines the types of conflicts small businesses are likely to encounter, while also outlining the measures available to prevent them and the approaches that can be taken to resolve them.

Boardroom disputes

Boardroom disputes arise when directors disagree over fundamental aspects of a company’s operation – whether that be its strategic direction, financial decisions or legal duties. These disagreements often have deeper roots, such as personality clashes, strained working relationships, conflicts of interest or differing ambitions for the future of the business. When trust between directors breaks down, the consequences can be far-reaching, affecting both the day-to-day running and long-term health of the company.

Many boardroom disputes can be prevented by putting strong governance in place from the outset. Clearly defining the roles and responsibilities of each board member creates structure and clarity. This should be supported by reliable processes for how decisions are made and how information is shared across the board. A culture of open, respectful communication should be championed by a capable and impartial chairperson. This leadership helps set the tone for how discussions are managed and how differing views are handled.

Debt recovery disputes

Debt recovery disputes occur when a person or business disputes an outstanding payment – either by refusing to pay or challenging the amount claimed. These situations often arise due to disagreements over the quality or delivery of goods or services, miscalculations, or confusion around who the debt is owed by. Common issues include late payments, allegations of faulty products or claims that the debt has been wrongly attributed. These disputes can place strain on commercial relationships and impact cash flow.

Many of these issues can be avoided by setting clear expectations from the outset. Provide clearly written contracts and invoices that outline the agreed terms – including the exact amount owed, due dates, and any interest or penalties for late payment. Setting out repayment terms in plain, unambiguous language helps prevent misunderstandings and provides a firm reference point if a dispute arises. It is equally important to make sure that these documents are shared and acknowledged by all parties involved.

Commercial property disputes

Commercial property disputes can develop when disagreements arise between business owners and their landlords over the terms or management of a commercial lease. These issues often involve rent arrears, alleged breaches of lease conditions, responsibility for repairs, or disputes surrounding lease renewal. Such conflicts can place significant strain on business operations and relationships, especially when not addressed promptly.

Many of these disputes can be avoided through careful planning and clear documentation. Commercial lease agreements should be professionally drafted to ensure they are thorough, legally sound, and free from ambiguity. Clauses should clearly outline each party’s rights and responsibilities – covering rent payments, maintenance obligations, procedures for renewal or termination, and what happens in the event of a dispute. Including provisions for regular rent reviews, service charges and property use restrictions helps avoid misunderstandings further down the line.

Contract disputes

Contract disputes arise when parties disagree over the terms, performance or enforcement of a legally binding agreement. These disagreements often occur when one party believes the other has failed to meet their obligations, leading to claims of breach of contract. Common causes include unclear or poorly drafted terms, non-delivery of goods or services, missed or late payments, or significant changes in circumstances that affect the ability to perform.

Shareholder disputes

Shareholder disputes occur when disagreements arise between individuals who hold shares in a company. These disputes are often rooted in concerns over how the business is being managed, the strategic direction it is taking, or perceptions of unfair treatment. Issues may also stem from breaches of the company’s Articles of Association or the terms of a shareholder agreement. Left unresolved, such disputes can affect decision-making, damage business relationships, and impact the overall health of the company.

One of the most effective ways to reduce the risk of conflict is by establishing a comprehensive and clearly worded shareholder agreement. This legal document should set out the roles and responsibilities of each shareholder, outline how decisions are to be made, and define key processes – such as how new shares are issued, how dividends are distributed and what happens if a shareholder wishes to exit the business.

How can businesses deal with these issues?

Even when precautions are taken to reduce the likelihood of disputes, conflicts may still arise. In such cases, businesses can seek professional guidance by consulting lawyers who specialise in litigation and dispute resolution. Legal advice provides a clear understanding of available options and helps determine the most effective course of action to protect the business and its stakeholders.