Forming a partnership is one of the best ways to conduct business. It allows owners to pool their resources and knowledge so they can work together for the benefit of each other and the company. By the same token, many partnerships have fallen apart due to conflict and disagreements. Partnership disputes are among the most common reasons these businesses fail. However, this doesn’t have to be the fate of your partnership. Working with an experienced business law attorney, you can establish safeguards to protect the operational health of your organization. Seder & Chandler, LLP offers a few tips for avoiding a partnership dispute.
Implement a Clear and Comprehensive Partnership Agreement
Many partnerships rely on the good faith of each partner to work together and carry out their individual duties. While we would all like to believe that someone’s word is their bond, the reality is that this isn’t always true. Having a partnership agreement is critical to defining the rights and obligations of all partners while protecting everyone’s interests.
But the agreement itself should be comprehensive and avoid the use of vague or ambiguous language. Some common subjects covered in partnership agreements include:
- Each partner’s ownership interest in the company
- Each partner’s duties and responsibilities
- How profits and losses will be allocated among partners
- Decision-making and dispute resolution procedures
- The duration of the partnership and how it may be dissolved
- Buy-out provisions in the event a partner leaves or dies
Including these and other provisions, drafted with the assistance of an attorney, will reduce the likelihood of a dispute.
Address Problems Early
Once a partnership starts operating, everyone will gain a better understanding of how the other partners function. If there are problems, they will likely begin to appear shortly thereafter. One of the worst ways to handle these issues is to ignore them when they are new and relatively inconsequential.
Addressing problems early can lead to either resolving them or compelling the partner who is causing them to leave the partnership altogether. Although the latter result is not optimal, it is far better than allowing the problem to worsen while the partner becomes more invested in the business and therefore more difficult to force out later.
Talk Through Disputes
Many disagreements can be defused by simply having a discussion with the partner who is causing the issue. Set up a meeting of the partners, perhaps in a more relaxed setting like at lunch, and ask the partner to explain their side of the dispute. Discourage the other partners from engaging in pressure tactics or being confrontational. Make sure the partner is given the chance to fully discuss his or her perspective and to ask and answer questions.
Once the partner explains their side of the matter, designate one person to talk about how the other partners see the dispute. If the partner is breaching something in the agreement, make reference to it and explain clearly how he or she is falling short. Offer realistic solutions for resolving the matter and a reasonable timeline in which the partner can do so. Close by obtaining a promise from the partner to work on the dispute while also committing to whatever you can do on your side of it.
Make Use of Alternative Dispute Resolution (ADR)
Your partnership agreement may have alternative dispute resolution (ADR) methods built into it which require the use of a mediator, arbitrator, or some other process for handling conflict. A business mediator is someone who will have the experience needed to facilitate positive discussions aimed at resolving the problem. An arbitrator may be needed for more serious matters that immediately threaten litigation.
If the mediation or arbitration is successful, you may be able to draft and execute amendments or modifications to the partnership agreement. These changes can clarify the relationships among the partners and strengthen the operation of the business.
Walking Your Partnership Through Its Challenges
The seasoned business lawyers of Seder & Chandler, LLP are well-versed in all aspects of partnership law. We also understand the practical considerations and dynamics that affect each individual partnership. To that end, we are prepared to assist with any legal matters that may impact your organization. From drafting and amending partnership agreements to representing partners in litigation, we have you covered.