Arbitration as an alternative in family businesses and dispute resolution

Family businesses represent one of the most common and traditional forms of business organization worldwide. These companies, which combine business management with family ties, have a special character that makes them unique and, at the same time, complex. The coexistence of economic, emotional, and family interests can generate internal conflicts that, if not handled properly, can jeopardize the continuity and success of the business. Therefore, having effective and appropriate mechanisms to resolve these conflicts is essential to ensure the long-term stability and sustainability of the family business.

Recently, as discussed in previous blog posts, a far-reaching reform of the Civil Procedure Law has been published in Spain through Organic Law 1/2025, which has as its fundamental objective the implementation of appropriate methods of conflict resolution, as opposed to the traditional judicial battle, with the aim of empowering citizens in how they address disputes and, in the process, unclogging the courts. To this end, the reform incorporates a series of coercive measures that oblige citizens (or companies) to seek alternatives within their reach before resorting to legal action.

One of the methods that we believe has gained popularity in recent years as an alternative to traditional legal proceedings is arbitration, and it will become even more so now following the new reform. In the case of family businesses, it has undoubtedly been one of the most popular options and will continue to be so, thanks to all the benefits that this alternative method has to offer. 

Arbitration is an efficient, confidential, and specialized option for resolving disputes, especially in the context of family businesses. In this article, we will explore in depth what arbitration is, its advantages, and how it can be a valuable tool for maintaining harmony and continuity in family businesses.

What is arbitration?

Arbitration is a dispute resolution mechanism in which the parties involved agree to submit their dispute to one or more arbitrators, rather than going to court. This process is based on a prior agreement, usually included in the articles of association or in specific contracts (always through arbitration clauses), in which the parties express their willingness to resolve any dispute using this method.

The arbitration process is voluntary and flexible. The parties can choose the arbitrators, define the rules of procedure, set the deadlines, and determine the venue for the arbitration. The decision issued by the arbitrators, known as the arbitration award, is binding and must be complied with by the parties, and can be enforced in court in the same way as a final judgment would be enforced.

Advantages of arbitration in family businesses

Arbitration offers several advantages that make it an attractive option for family businesses:

1. Confidentiality: Unlike court proceedings, which are public, arbitration takes place in a private setting. This is especially important in family businesses, where privacy and reputation are key issues. Confidentiality helps prevent internal conflicts from becoming public issues that could affect the business's image.
2. Speed and efficiency: Court proceedings can drag on for years, creating uncertainty and emotional strain. Arbitration is usually more streamlined, with shorter deadlines and simplified procedures, allowing conflicts to be resolved in less time and at a lower cost, not only financially but also emotionally for the family business.
3. Specialization: The parties can choose arbitrators with experience in business, family, or specific issues related to the sector in question. This ensures that the resolution takes into account the particularities of the business and family relationships, resulting in fairer and more informed decisions.
4. Flexibility: The parties have greater control over the process, being able to define rules, deadlines, and procedures that suit their needs. This facilitates a resolution that is more adapted to the reality of the family business.
5. Preservation of relationships: As it is a less combative process and more focused on finding solutions, arbitration can help maintain healthier relationships between family members and partners, preventing conflicts from escalating and promoting reconciliation between the parties involved.

Another important advantage is that, by resolving conflicts quickly and effectively, the time and emotional energy invested in protracted disputes is reduced. This helps family members focus on strengthening their bond and growing the business, rather than being caught up in internal conflicts.

In conclusion, arbitration is a valuable tool for family businesses, as it promotes efficient, confidential, and specialized conflict resolution, contributing to the long-term stability and sustainability of the business by fostering communication, trust, and respect among family members.

Benefits of arbitration compared to other alternative dispute resolution methods

Despite all the benefits outlined here, it is true that arbitration can sometimes be more expensive than other alternative dispute resolution methods (such as mediation or conciliation). However, compared to these other options, arbitration provides a definitive solution, since once the arbitration proceedings have begun, they will guarantee a final resolution within less than a year.

This has clear competitive advantages over mediation or conciliation, as these can be “abandoned” by either party at any time, forcing the other party to resort to legal action. This would entail a double cost: not only the economic cost (since both the mediation/conciliation fees and the ordinary jurisdiction fees would have to be paid: fees, lawyer, solicitor, other professionals, etc.), but also a high time cost, which would undoubtedly far exceed the speed of the final arbitration decision within less than a year.

Therefore, we believe that arbitration is one of the most interesting options for disputes that may arise in family businesses, which is why we recommend that our clients consider including arbitration clauses in all company documents that may require them.

Our team specializing in family businesses has professionals with extensive experience before the most prestigious arbitration courts, not only nationally but also internationally, who can advise you in this regard, always seeking to ensure the continuity of the family business.

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Paola Rodiles-San Miguel – Family Business Group

Manager in the litigation and arbitration area