Business partnerships are when two or more individuals enter a legal agreement that allows them to share business ownership and profits. There are many benefits to joining forces to operate a company in Washington state. However, just as a marriage can sour and lead to divorce, business partnerships can sour and create conflict. Business partnership disputes arise for various reasons, ranging from personality clashes to differing opinions on the company’s future. While some conflicts can spur innovation and change for a company, many can harm the company.
So, how do you handle a partnership dispute? There are preventative actions and dispute-resolution methods that can help salvage your business partnership. Below, we discuss common partnership disputes and how to navigate and resolve them.
Common Types of Partnership Disputes
Business partnership disputes can arise in many different scenarios. A few of the most common partnership disputes include:
- Breach of fiduciary duty. Business partners rely on one another to put the interests and needs of the business ahead of their own. When one partner jeopardizes the business interests to benefit personally, disputes arise.
- Breach of contract. Business owners may claim breach of contract when there is a disagreement about the rights and responsibilities of business owners. Some breach of contract issues may include ownership interests, compensation, decision-making, profit allocation, and buy-sell agreements.
- Negligence. A partner acting negligently can harm the business and lead to conflict.
- Failure to delineate authority. Failing to set out each partner’s roles and responsibilities clearly often leads to conflict and feelings of unfair workload distribution.
- Misappropriation of assets. When one partner misappropriates or embezzles assets or money from the company.
- Dissolution of the business. The partnership is dissolved when one or more partners decide they can no longer work together.
In addition, partnership disputes are often caused by poor communication between partners, trust issues, differences in the company’s goals and visions, financial issues, and clashes in personality.
How to Mitigate Partnership Disputes?
Many disputes arise due to poor communication or lack of clarity in the partnership agreement. The way you set up your partnership and communicate with your partner can minimize future disputes. A few ways to prevent partnership disputes before they occur are:
- Create a comprehensive partnership agreement. A detailed partnership agreement can avoid conflicts by clearly delineating each party’s rights, responsibilities, and future dispute resolution mechanisms.
- Contingency planning for worst-case scenarios. Anticipating and planning for worst-case business scenarios allows you and your partner to devise plans ahead of time and without added emotions for how you will manage the situation.
- Develop a culture of collaboration and communication. Effective conflict resolution involves collaborating, compromising, and communicating respectfully and clearly. If you foster these attributes and prioritize business interests over individual personal preferences, you can resolve future conflicts more amicably.
Having an attorney review your partnership agreement and other policies and procedures can also help avoid future conflicts.
How to Resolve Conflict in Partnership?
There are several ways to approach partnership dispute resolution.
Conversation
Direct conversation with your business partner is often overlooked when resolving a partnership dispute. Many people are quick to involve third parties or go to court. Sometimes, the simplest way to resolve a disagreement is by speaking directly with your partner about the issue.
When having a conversation about the dispute without the help of a third party, it is helpful to:
- Focus on the facts at hand;
- Set emotions aside;
- Listen to your partner’s concerns without interrupting;
- Refrain from being defensive;
- Find common ground; and
- Identify a plan for resolving the issue.
A collaborative conversation with your partner may lead to the most durable solution because both parties devised it together.
Alternative Dispute Resolution
Alternative dispute resolution (ADR) methods are also generally less formal than going to court and can save you time and money. ADR models utilize a third party to facilitate the parties’ resolution. ADR is also confidential. Common ADR processes include:
- Mediation—a trained, neutral third party facilitates communication between the parties to reach common ground but does not impose a decision; and
- Arbitration—a trained, neutral third party hears both sides and acts as a decision-maker who issues a legally binding decision.
Using an outside, impartial third party often helps the parties preserve their relationship while still maintaining some control over the outcome. Some partnership agreements contain provisions requiring the parties to go through ADR before litigation.
Litigation
Traditional partnership dispute litigation is often the avenue of last resort. However, litigation is sometimes the most appropriate way to resolve a partnership dispute if it is complex, involves high-profile parties, or if the parties know they will not be able to come to a mutually agreeable solution.
Litigation involves each party presenting their case in court through evidence and legal arguments. Compared to disputes resolved through ADR, litigation generally results in a win-lose outcome.
Business attorneys prepare their clients for litigation by gathering and analyzing evidence and developing tailored legal strategies. In court, the attorneys present the case to a judge and advocate for their clients’ interests. The process can be long, expensive, and more adversarial.
If you intend to file a lawsuit, hiring a trusted attorney knowledgeable about the type of dispute you are experiencing is essential.
Whether you need help drafting a partnership agreement or resolving a dispute through ADR or litigation, Smith + Malek can be your trusted advisor. We have built an exceptional team of experienced lawyers familiar with the nuances surrounding partnership disputes and business contracts. Our attorneys will thoroughly review your partnership agreement and work with you to gain a deep understanding of the dispute at hand. They will then collaborate with you to identify ways to mitigate damage, protect your interests, and resolve the conflict most efficiently and cost-effectively.
Smith + Malek attorneys are well-versed in business contract law and come from diverse legal and industry backgrounds that allow them to manage a wide array of business conflicts. Contact Smith + Malek today to learn how our team can help you prevent or resolve partnership disputes.