Business partnerships are a lot like a marriage. Like marriage, certain areas of dispute commonly crop up at various points. Ideally, the partners find an amicable way to resolve the disagreement and reach a consensus. The best way to deal with disputes is to put an effective strategy in place to avoid them.
Care should be taken in drafting a partnership agreement making sure that that the agreement clearly establishes the rights and obligations and sets forth a clear dispute resolution procedure. A lawyer can help with that. Partnership disputes hopefully can be resolved through meetings or conversations. If the partners reach an impasse, the partnership agreement should outline a more formal format to address the dispute, such as mediation, arbitration or using a neutral third party. Depending upon the issue and what is at stake, litigation may be the best option.
Four common issues of disagreements
Every partnership is unique, with each partner having their approach. Differences can lead to creative friction in a positive way where the differences are complimentary, or it can be a matter of differing philosophies and goals. Common causes for disagreements are:
- Breach of fiduciary duties: Partners must act in the company’s best interests and not do anything that harms the partnership or the standing of the company. Those who intentionally cause harm to the business, act inappropriately, steal or violate the terms of the contract are in breach of their fiduciary duty.
- Allocating resources: One partner may focus on new areas of business or new equipment, while the other may want to focus on retaining existing customers or using existing equipment. Or, one may wish to draw a small salary so they can put money back into growing the business, while the other needs a larger paycheck.
- Failure to define roles: Maybe there is an informal arrangement where one partner is more customer-facing while the other handles staff or the books. Something may shift, or they find themselves working on new or overlapping issues, which can lead to or indicate undefined leadership.
- Uneven workloads: Work-life balance is wonderful, but different partners define that differently or have no interest in maintaining that balance. It likely will cause friction and resentment if one partner continually puts in 60 to 70-hour work weeks while the other leaves early to pick up their kids or doesn’t work nights and weekends.
Create the right partnership agreement
Partnership agreements can go a long way toward defining each partner’s role, how to address foreseeable disputes, and establishing a path forward for the business. This minimizes the potential of foreseeable conflicts, such as those outlined here, and builds a concrete dispute resolution mechanism for hurdles and disagreements, including the exit of an unhappy partner. An attorney can work with the partners to create a fair and binding agreement that addresses the needs and concerns of the partners.
