Individuals often go into business together to pool their resources, funds and skills. Partnerships can be a great way for two or more like-minded people to start their own business and be their own boss.
However, partnership disputes are not uncommon. When these disputes arise, they can threaten the livelihood of the business and the viability of sustained business relationships. Below, our business attorneys share important information with you regarding common causes of partnership disputes and ways that they can be resolved.
Common Causes of Partnership Disputes
Partnership disputes can arise for a number of reasons, including because of disagreements regarding the responsibilities of the partners, problems with third parties or how to manage funds. Common partnership disputes stem from:
- Misunderstandings about the partnership agreement’s terms
- Disagreements regarding how to manage the business
- Allegations of misconduct
- Allegations of breach of contract of the partnership agreement
- Disagreements regarding how to spend money in the business and how to distribute profits
- Different opinions regarding the responsibilities between the partners
- Allegations of violation of a non-compete agreement
- Allegations of a breach of fiduciary duty
- Disagreements regarding buyout agreements
Because partners may have different dynamics and challenges, there are many other reasons for these disputes.
Ways to Resolve Partnership Disputes
Preventing disputes is an important goal for many business owners. Partners may help head off disputes by memorializing their understanding of the partnership in a written agreement. This agreement may discuss how assets and liabilities will be managed and how the partners plan to resolve disputes.
Additionally, the partners can be sure that all agreements that they have with third parties, such as contractors, vendors, customers and clients are also memorialized in clear contracts. A buyout agreement can also discuss what will happen if one or more partners want to leave the partnership and how partners leaving the business will be compensated.
Options to resolve partnership disputes may include:
- Negotiations – The parties may agree to directly negotiate a resolution or use other methods identified in their operating agreement.
- Mediation – Mediation involves a third-party neutral who helps the parties avoid litigation.
- Arbitration – Arbitration is a way to resolve a dispute through the use of a subject matter expert. The parties can decide whether the decision is binding or non-binding.
- Litigation – A partner may decide to file a lawsuit against the other partner.
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