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How to handle common partnership disputes

On Behalf of | Feb 20, 2020 | Firm News |

Having a business partner allows you to expand your enterprise by pooling resources and talent. However, disputes with your partner can threaten productivity and profits. 

Plan for a harmonious future with strategies to handle common partnership issues. 

Create a written agreement 

Establishing a partnership agreement can resolve any number of partnership disputes before they arise. This legally binding document should provide details about: 

  • Each partner’s roles and responsibilities 
  • Capital contributions from each partner 
  • Compensation for each partner, including stock and fund distributions 
  • How to handle conflicts, withdrawals, removals and changes in ownership percentages via new capital contributions 
  • Each partner’s percentage of control of the business 
  • Decision-making procedures 
  • How and when partners can terminate the business 

Develop a system of checks and balances 

Many partnership agreements involve financials, especially when one person has control of the funds. To prevent embezzlement, fraud and other actions that threaten the company’s reputation and future, make sure that all partner transactions receive a review from at least one other partner. When any partner commits these crimes or other breaches of fiduciary duty, the entire firm is at risk for litigation. 

Keep open lines of communication 

Partners may develop resentment when they experience an uneven division of labor. This is one area where a partnership agreement can settle disputes. For example, you may include provisions for updating one person’s responsibilities or compensation when he or she contributes more sweat equity. 

Consider mediation 

Alternative dispute resolution methods can help resolve conflicts before they affect your business operations. A trained, professional mediator can help you and your partner negotiate effective solutions and compromise on contentious issues. 

Establish protocol for decisions 

The partnership agreement should list a clear procedure for decisions on which partners disagree. When you have more than two partners, for example, you can require a majority vote on an issue. Other decisions may be more appropriate for your key shareholders or a board of directors, depending on the structure of your business. 

Even when you have a partnership with a friend or family member, put every decision in writing. Oral agreements can lead to future disputes.