A business partnership offers many advantages, including the opportunity to combine skills and resources to develop a successful business. At the same time, whenever two or more people work together, disputes can arise.
So what happens when partners cannot agree on important business decisions?
Common methods for resolving partnership disputes
There are a number of ways in which partners work through issues. Use of a mediator to facilitate discussions among partners is one option. This option can help partners recognize common ground and rebuild fractured relationships.
Another option is a buy-out, in which one or more partners purchase another partner’s stake in the company.
In some circumstances, parties may decide to dissolve the partnership or sell it to new owners. Or, a partner with a majority share may try to merge with another business in an effort to “freeze out” minority owners, whose interests could then be involuntarily bought out.
At times, partnership disputes result in litigation. While litigation may be unavoidable if no other means exist to resolve a dispute, litigation has the disadvantage of removing decision-making authority from the partners and giving it to a court.
Avoiding partnership disputes
Partnership disputes can be expensive and distract from operating a successful business, so partners often ask how to avoid disputes before they arise. One potential solution is executing a well-drafted partnership agreement.
A partnership agreement defining the roles and rights of partners helps avoid disagreements by plainly defining duties and interests of each partner. The partnership agreement can also specify how partners resolve any potential disputes, such as requiring medication.
An experienced attorney can help draft a clear agreement that puts into writing each partner’s obligations and rights. With this preventive step, partners can avoid messy disputes and set themselves up for long-term success.