Disputes between business partners are, unfortunately, all too common. Whether it’s about who gets to make the final decision about company direction or who gets more of the profits, partners can sometimes get into heated arguments that end in one partner leaving the company or even taking it over by force. To avoid this situation and help your business run smoothly, here are seven tips for settling common business partnership disputes before they get out of hand.
Adopt a partnership agreement.
No matter how strong your relationship is with your business partner, it’s wise to take proper steps to protect your interests. A partnership agreement allows you to resolve disputes before they happen and can help ensure that your business is protected in case something goes wrong. Partnership agreements are just as crucial as business plans or profit-sharing documents because of their role in settling many common types of business partner disputes. A contract ensures both parties are clear on their responsibilities and who gets what share of profits if a dispute arises. An effective partnership agreement means there won’t be any doubt about what should happen if things go south. For example, suppose one party wants out but doesn’t want to give up equity in return. In that case, a contract could state that an exit package must be negotiated instead of giving up equity without consent from other partners. Business partners will often negotiate terms together, but legal experts say every party should consult an attorney separately—not all businesses are created equal, so each business needs its specific rules.
Partners’ roles and responsibilities
It’s essential to ensure that you and your business partner are on equal footing regarding who has final authority over which decisions. If one partner is a much more experienced entrepreneur than another, it may be in the company’s best interest to have the experienced partner get more say in company matters. Or, if they provide a lot of capital to start things off, they may also want a more significant role in decision-making. Remember, too, that some business partners have different roles. For example, one might handle sales while another deals with operations; these responsibilities should also be outlined clearly in writing—the less ambiguity around these issues from day one, the better. Clear business rules can go a long way toward settling disputes before they even arise. Once you’ve agreed on how big of a role each partner will play in decision-making or what happens when conflict arises, it is essential to put all those rules down on paper. Even if everyone agrees verbally that things will work out according to plan, writing everything down makes everyone aware—and accountable—for any changes that may occur down the road.
Plan for Worst-Case Scenarios
When writing your partnership agreement, don’t just think about the future. Think about what might go wrong, too. Imagine a variety of worst-case scenarios and create procedures for resolving them. For example, you can include a clause that allows you to dissolve your partnership if one partner cheats or steals from another. You can also specify dispute resolution procedures, like binding arbitration or mediation—services that help settle arguments between businesses by mediating conversations with independent third parties. This is important because in addition to allowing you to dissolve partnerships when things go awry, having a dispute resolution procedure in place helps alleviate some stress during disagreements. Your partners will know they have an established way of settling their problems so they can focus on other issues. If you don’t have an established process for handling disputes, it may seem easier not to address conflicts at all.
For a Business Partnership to work, everyone needs to learn to compromise.
In every partnership, there will come a time when you have to settle some dispute. What do you do then? Like any relationship, your business partnership will come with conflicts and arguments that cannot be solved by one person alone. One person’s solution might directly oppose another’s; these situations call for compromise. Always aim to find a solution that both of you can live with—even if it isn’t your first choice or theirs. At least it’s a start! If you still have trouble finding common ground, try again after sleeping on it or talking with a friend or mentor. You may wake up with a new perspective and see an obvious solution that escaped you before. If all else fails, talk about what would happen if no agreement could be reached: How would work get done? Who would make decisions?
If negotiation isn’t working out, you might be able to agree to mediation. Mediation is one good option, but sometimes you need to engage a professional neutral arbitrator so you can have the partnership disputes officially resolved so that the arbitrator’s decision will be binding. Hiring a professional mediator or arbitrator will cost money, but in the long run might be worthwhile. When you engage a mediator or arbitrator, you can know that, while you might not like the decision, a decision will be made and will be one that an outside observer finds reasonable.
Contact a Business Litigation Lawyer
Litigation is sometimes necessary, but it should be a last resort. Do not wait to consult a lawyer until you decide to take legal action. If disputes aren’t being resolved and your partnership agreement doesn’t outline how they will be handled, contact an experienced business attorney right away—don’t let issues fester until they’re out of control.
Anthony Law Group is here to help and has over 25 years of Business Law Experience.
Partnerships are complicated, but that doesn’t mean they can’t be fixed. If you and your business partner are having a dispute, don’t worry, we can help. Anthony Law Group helps clients and business partners settle legal disputes. With 25 years of Business Law experience, we understand all aspects of business partnerships, from drafting agreements to settling conflicts. Reach out for a case consultation by calling 602-362-2396 or contacting us online.