In today’s modern world, a business partnership can be very beneficial when pursuing shared entrepreneurial goals. However, if disputes occur in business partnerships, they can create disruptive challenges which may need to be addressed quickly, says Stephanie Whitchurch, Head of Litigation at Tallents Solicitors.
Partnership disputes can threaten the very existence of the business and the personal relationships of those involved. In this article, Stephanie will look at some of the most prevalent partnership disputes that she’s experienced and explore strategies to resolve them amicably.
Differing expectations of business goals and objectives
Successful businesses are focused on their goals and effective communication about that progress is vital in any successful and thriving partnership. Without regular communication on the aims, goals and objectives of the business, misunderstandings and disputes can quickly occur. Partners may feel left out of important discussions or not adequately informed about the business’s direction.
We recommend you schedule regular partner meetings to discuss progress and encourage an open and honest discussion between everyone. A formal Business Plan and Strategy can give both guidance and a benchmark for progress.
Disagreements over roles and responsibilities
One of the most frequent causes of partnership disputes stems from disagreements over roles and responsibilities. As businesses evolve, partners’ initial roles may no longer align with the business’ changing needs. This misalignment can lead to frustration and resentment, potentially escalating into a dispute.
Additionally, partners often have varying work ethics and levels of commitment to the business. When one partner perceives the other as not pulling their weight or prioritising other interests, it can lead to tension.
Quite often partnership disputes can arise from disagreements on decision-making regarding the business and its direction. If one partner consistently overrules others or insists on having the final say, it can breed resentment and hinder progress.
A written Partnership Agreement is not only an important business strategy tool, but it should also be organic so that it reflects the partners’ evolving roles and responsibilities. A solicitor can help you draw up an agreement that you can all agree on, giving everyone clarity and focus.
Compensation disagreements often arise when partners feel they are not adequately rewarded financially for their contributions to the business. These types of disputes can quickly lead to resentment and decreased motivation, so it’s important to ensure that the workload is clearly distributed and compensated according to individual contributions.
In our experience, disputes over money and finances can escalate quickly into a dispute. Over the years we have seen some very destructive arguments occur in key areas such as: profit distribution, asset and liability distribution, who owns property within the business, investment decisions, capital contributions and how this is dealt with in the accounts.
Preventing business partnership disputes
Common business partnership disputes can be detrimental to both the business and personal relationships involved. But the good news is that many disputes can be avoided with a written Partnership Agreement.
Aside from providing a legal basis for decision making and protecting the interests of everyone involved in the business, a written Partnership Agreement will clearly:
- Define the conditions and expectations for the partnership.
- Define the duties and responsibilities of the partners in the day-to-day management of the business.
- Define payment structures and criteria in the partnership agreement, including how any payment reflects individual contributions and market standards.
- Show how the profits and losses will be split.
- Set out the ownership of the assets belonging to the business and individuals.
- Give details of the bank accounts, borrowing or lending relevant to the business.
- Outline the succession plan for the business, including what happens if a partner is incapacitated, wishes to retire, or passes away.
- State what happens in the event of a dispute and how they would be resolved.
By addressing roles, responsibilities, financial matters, work ethics, decision-making processes, communication, exit strategies, and compensation issues through clear and well-documented partnership agreements, partners can protect their interests and foster a harmonious and productive business environment.
Ultimately, a successful partnership is built on respect, trust, collaboration, and a commitment to working through challenges together. So proactive measures, such as a written Partnership Agreement and effective communication can help mitigate disputes and pave the way for amicable resolutions should they occur.
Still can’t find the middle ground in a business partnership dispute?
In situations like this, our recommendation is to seek professional advice or mediation to help you resolve the disputes. Our experts at Tallents Solicitors can help you work through the issues and find respectful solutions to ensure the business continues to function successfully. Call one of our three offices in Newark, Southwell or Mansfield to arrange a confidential appointment.
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Image by Mohamed Hassan from Pixabay
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This legal content of this article is correct at the date of publishing. We recommend you seek legal advice with regards to your personal circumstances before acting.