PARTNERSHIP DISPUTES

A business partnership is a close, interpersonal relationship that is in no way immune to the usual problems.  Disputes may arise over trust, control or money. When a dispute arises between business partners however, much more than the immediate issues of trust, control, and money is at stake. Left unresolved, a partnership dispute can threaten the very existence of a business—hurting all of those who have worked so hard to make the business thrive — as the partners seek to preserve their own positions. hands in tug of war on ropeIf your business partnership is struggling, consider some of the following ideas to work through the issues.

 

  • Write down with specificity each partners role and responsibilities. Oftentimes, the break down of a relationship comes from someone’s expectations not being met.
  • Be direct with each other. The unsaid is more damaging than the said.
  • Pick one partner to be the executive. Equal partnerships often cause the partners to come to loggerheads over operational decisions, which is hugely damaging to a business. A business cannot be run day-to-day by committee in most circumstances. Pick someone to be the leader and avoid deadlock.
  • Be clear on the money. Expenses, owner draws and spending authority are all areas that should be negotiated in advance.
  • Map out both short and long term goals so that everyone is on the same page and envisions the business the same way.
  • Consider structuring as a limited partnership. Such legal entities keep the liabilities of one partner from becoming the liabilities of the other partners.
  • Make sure your partnership agreement is thorough and clear on issues of operational and spending authority, draws and exits.
  • Set up the business so that a partner is free to leave at their election without it massively disrupting the business. That way no one is afraid and no one has too much power. Also, when people are staying because they want to be there, rather than because they don’t know how to leave without destroying the business, their attitude and engagement will improve.
  • Consider using a lawyer or a professional mediator to work through issues and then memorialize them in the partnership agreement.
  • If the partnership must break up, use a lawyer to negotiate an amicable buy out or split to avoid litigation.

Sometimes litigation cannot be avoided (particularly if your partner has already sued you). In these cases, the partnership agreement and partnership laws (typically some variance of the Uniform Partnership Act) will govern how the business proceeds or is dissolved. In the event of a lawsuit, you must immediately seek counsel to defend the suit and to maintain operations legally.

If Your Company’s Business Partnership is Struggling, Our Attorneys can Help

If your business partnership is in a state of crisis, contact us to discuss your options. Better yet, ask about the Business Risk Review and address simmering issues before they explode and take the business with it.

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