The Most Common Causes of Partnership Disputes
Business partnerships are complex, with a great deal of pressure exerted on the bond. It’s far too common for disagreements to arise among partners, no matter how strong their relationship is or how successful the business is. It becomes a question of not when a dispute will arise but whether your partnership will survive. Even though there are plenty of situations where the saying “It’s not personal; it’s just business” remains true, any decisions made between business partners that are not wholly agreed upon can feel like personal attacks, leading to severed relationships and dissolution of the partnership.
To protect your partnership from unraveling, take a look at the top causes of partnership disputes and how you can protect your business relationship:
Disagreements on How Financial Assets Should Be Used
Money is always a sensitive topic — whether between a married couple or business partners. For this reason, it’s not a surprise that one of the most common reasons partnership disagreements arise is because money is involved. Whether it’s how the financial assets should be allocated or how a partner has started mixing personal and business expenses, it can feel like navigating a minefield handling these issues. If clear lines are not drawn in the partnership agreement from the start, minor disagreements can quickly escalate to legal disputes that end the partnership and sink the business.
Arguments Over the Designation of Intellectual Property Ownership
Intellectual property (IP) is almost as sensitive a subject as money. People want to own the rights to their ideas and inventions. Unfortunately, if the partner with a great idea does not protect their IP with clear documentation, it could be argued that the rights to the IP belong to the company rather than an individual partner. All too often, business disputes arise because there is no clear distinction of who owns the rights to intellectual property.
Issues Due to a Lack of Establishing Authority
If a chain of command is not established early on, disagreements can occur among partners regarding who should have the final say in a particular matter. Typically, each partner will be in charge of specific business areas, such as finances vs. operations. Without this distinct separation of duties, partners could make decisions in areas they are not experienced in and ignore the expertise of the other partner. Not only does this potentially put the business in a compromising position, but it also weakens the business partnership.
A Disconnect on the Future Direction of the Company
Once a business reaches a certain level of success, partners are faced with how to continue to grow their company. Which steps should they take next? Should they open a second location? Should they accept foreign investments? At this point, many partners realize they have different (and incompatible) ideas for how the business should be taken to the next level. Disagreements over the company’s future direction can cost them the success they’ve experienced so far. The best way to avoid this type of dispute is to discuss plans of action for various scenarios long before the business gets going.
What to Do if a Partnership Dispute Arises
In the unfortunate event that a business dispute arises with your partner, you should reach out to an experienced business attorney as soon as possible. Your lawyer can help you and your partner find any documentation that will support one or the other’s claims and provide guidelines for moving forward. The attorney can also offer suggestions on how to resolve the dispute, such as mediation or arbitration, so you and your partner do not have to give up on all your hard work.
If you decide it would be best to end the partnership, a commercial lawyer can advocate for you and represent you in any court proceedings, ensuring the partnership is ended properly and all your rights are protected.
Enlisting the Help of Business Attorneys
The best defense against business partnership disputes is structuring your partnership with the assistance of a legal team. At Garibian Law Offices, our business formation attorneys are adept at providing legal advice for the formation of partnerships and handling disagreements. If you need help establishing a business partnership or resolving disputes, contact our team of business attorneys today.