5 Common Types of Partnership Disputes and How a Lawyer Can Help
No matter how strong your partnership is, disputes will sometimes arise. The right business law attorney can help you prevent and resolve these issues if they happen.
A partnership agreement can limit the potential for conflicts, but problems can still occur due to misunderstandings, poor wording, or the addition of other partners later. An attorney can help you find ways to address these concerns before they escalate.
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Misconceptions About the Business
Going into business with a trusted friend or colleague can be an excellent idea. However, partnerships have the potential for conflict.
Arguments about ownership and profit distribution are common causes of partnership disputes. These disagreements can become legal disputes if the partnership agreement needs to clearly state how much each partner will invest and how the profits will be distributed.
Uneven workloads can also lead to resentment between partners. To prevent this, partners should communicate regularly and set out clear protocols in the beginning. This includes establishing how many hours each partner will work and ensuring that both partners contribute equally. An experienced business litigation attorney can help with this.
Unequal Financial Investment and Profit Sharing
Partners often form partnerships to take advantage of complementary skill sets and avoid having all the responsibility fall on one person. However, when the duties and workload don’t align, it can create an environment that breeds conflict and ultimately leads to disputes.
A business attorney can help create a partnership agreement outlining ownership rules, profit distribution, and money disbursement. Including a prohibition on commingling personal and business funds in the contract can go a long way to eliminating conflicts of interest and related disagreements.
The agreement should also establish what will happen in a dispute. It may include a formula for buying out a partner or shareholder at a predetermined price. This could be a helpful solution to resolving an irresolvable conflict and allowing the business to continue.
Breach of Fiduciary Duty
Without clear ownership rules and the partnership agreement spelling out profit distribution, authority delineation, and money disbursement, minor disagreements can quickly become disputes that strain the business relationship. To avoid this, all partners should set ownership rules at the outset and reduce them to writing, including prohibitions against commingling personal and business funds.
In addition, partnerships often rely on confidential information, which must be protected unless all parties agree otherwise. Disclosure of this information can result in a breach of fiduciary duty, another cause for partnership disputes.
If you prove that a partner acted against the company’s best interests, you may have a valid claim for damages. An experienced attorney or partnership dispute lawyer can help you file the appropriate claim.
Disagreements about important business decisions are often the catalyst for partnership disputes. Open communication is one of the keys to avoiding such conflicts.
Documenting a clear business structure at the outset can also help prevent such problems. A well-drafted agreement should establish the roles of each partner and specify how decision-making will be handled. It should also clearly indicate when and how a lesser partner can buy out the company’s equity or force out a controlling partner.
If you are in a partnership dispute, our attorneys can provide the experienced representation necessary to protect your interests and business. We offer a range of dispute resolution options, including mediation and arbitration, to resolve disagreements outside the courtroom. Our goal is to keep your legal costs as reasonable as possible.
Disparate Equity Distribution
A dispute over a separate equity distribution can cause significant harm to a partnership. Some partners may feel they have earned more than their share of the business and can make valid claims for higher profits or greater management rights.
Resolving a disagreement requires open communication. Partners should agree on communication protocols to avoid squandered opportunities and heated arguments. They should also clearly document their financial investment, responsibilities, and contributions to the business.
In extreme cases, a severe disagreement that remains unresolved can result in the company’s liquidation. If the company’s liabilities exceed its assets, this option offers a way to wind up operations with minimal loss for both parties. A court can oversee the liquidation process, which includes dividing and distributing any remaining assets.