Seven Methods for Settling Common Business Partnership Disputes
Business partnerships almost always involve occasional disagreement. After all, much of the value of such partnerships lies in how each party brings something different to the table. But sometimes partners encounter, not just differences of judgment, but deep-seated conflicts that become acrimonious, or even threaten the existence of the partnership itself.
Faced with such disagreements, it’s still often preferable to seek a compromise rather than to jump immediately to legal action. Here are a few ways you can handle partnership disagreement while staying out of court.
- Adopt a partnership agreement. Partnership agreements allow you to resolve disputes before they happen, which means, also, when everyone is friendly and level-headed. You should seek legal assistance in writing these, because if anything goes wrong, they will be the basis for resolving disputes which might otherwise go to court.
- The agreement should specify the different partners’ roles and responsibilities. Who has final authority over which decisions? Who makes which capital contributions? How will profits be divided? If any intellectual property is involved, to whom does it belong, and, if it belongs to one of the partners, does the partnership have a license for its use? Many common problems between partners involve bookkeeping. It’s important for all partners to have access to all relevant information about income and expenditures, but for only one partner to have final control over partnership funds.
- The agreement should also account for worst-case scenarios. What happens if one partner dies or is incapacitated? What happens if one partner wants to buy out the other? What happens if the partners have a deep-seated disagreement over where the enterprise is going? How can the partnership be dissolved, and under what circumstances? You can’t anticipate every scenario, but you can specify procedures for resolving unanticipated problems.
- If you encounter a problem not covered in your partnership agreement, or if you don’t have a partnership agreement to begin with, you can still attempt to negotiate a compromise. Negotiation isn’t about winning the argument—you already know that your disagreements are too deep for that. Rather, it’s about finding a solution you both can live with. It’s a bit like writing a partnership agreement when you already know the problem the agreement needs to resolve. Negotiating doesn’t need to mean just the partners locked in a room, and you might want to rely on legal advice while the negotiations are ongoing.
- If negotiation isn’t working out, you might be able to agree to mediation. Informal mediation is one option, but it’s often a good idea to engage a professional neutral arbiter, and to have the partnership officially resolve that the arbiter’s decision will be binding. Hiring a professional mediator will cost money, but in the longer run might be worthwhile. When you engage a mediator, you can know that, while you might not like the decision, a decision will be made, and will be one that an outside observer found reasonable.
- If you can’t come to an agreement, it might be time for the partnership to dissolve. Dissolving a partnership, however, can itself be a problematic enterprise, requiring negotiation, mediation, or even litigation.
- Litigation is sometimes necessary, but it should be a last resort. You shouldn’t wait to consult a lawyer until after you decide on taking legal action. A good lawyer can help you make that decision, and help you find ways to avoid it.