Founder
While partnerships offer a powerful way for entrepreneurs to pool skills and resources, disagreements can arise, jeopardizing the business’s success. It’s crucial to address these conflicts swiftly to safeguard the partnership and its stakeholders. In this blog, we’ll explore some valuable strategies that can minimize disruptions, protect the business, and preserve the individual interests of each partner as much as possible.
Establish or Revise a Partnership Agreement:
If you haven’t formalized your partnership, it’s imperative to create a partnership agreement that outlines each partner’s rights, responsibilities, and legal protections. If circumstances have changed, you may need to modify an existing agreement. A well-crafted agreement should cover:
- Roles and responsibilities of each partner
- Capital contributions
- Compensation structures and ownership stakes
- Decision-making procedures and dispute-resolution mechanisms
- Exit protocols for partners
In many cases, creating or amending a partnership agreement to address an ongoing dispute can bring the temperature down and resolve the issue.
Communicate Openly with Your Partner
Without open dialogue, misunderstandings and tensions can escalate. If an issue arises with your partner, initiate a respectful conversation to realign your interests and address misunderstandings.
- Approach the conversation with respect and focus on facts, not emotions.
- Seek common ground and actively listen to your partner’s concerns.
- Develop a plan to resolve the issue collaboratively.
- If needed, consider involving a neutral third party to facilitate the discussion.
- Consider Mediation
Mediation is a nonbinding process in which a mediator facilitates discussions between two parties in order to settle disagreements in a non-confrontational way. A business mediator can be invaluable in navigating partnership disputes. They can help:
- Craft, negotiate, finalize, or adjust partnership agreements.
- Facilitate productive conversations and resolutions.
- Lower the temperature, especially if litigation is a possibility.
Mediators remain impartial, focusing on fostering communication and guiding partners toward a mutually agreeable solution.
Explore Arbitration
If partners struggle to reach agreements on their own, arbitration can offer a streamlined and less formal alternative to litigation. An arbitrator will consider both sides’ perspectives and then issue a decision.
Partners can choose between binding arbitration (in which they are legally obligated to follow the arbitrator’s rulings) or non-binding arbitration (which allows for other dispute resolution methods if the partners are dissatisfied with the outcome).
Consider a Buyout
If partners find it impossible to continue working together, but the business remains viable, a buyout might be the solution. One or more partners can purchase the shares of the partners who wish to leave.
A well-drafted partnership agreement should outline the buyout procedure. If not, a business valuation will be necessary to determine fair compensation.
Consider Selling the Business
If none of the partners want to continue the business. If the business is still successful, selling it to a new owner could be the best option. Refer to the partnership agreement for guidance on the valuation process or engage a business broker to find potential buyers.
Litigation as a Last Resort
If disputes arise due to partner misconduct (breach of fiduciary duties, fraud, etc.), litigation might be necessary to hold the wrongdoer accountable and resolve the matter through an injunction or compensation.
Consult with experienced litigation counsel to assess potential claims and legal options.
Resolve Your Dispute with LaFountain & Wollman P.C.
Our team of experienced attorneys can guide you through the complexities of partnership disputes. We offer comprehensive legal services, including:
- Drafting, reviewing, and negotiating partnership agreements
- Mediating disputes to find amicable solutions
- Representing clients in arbitration or litigation proceedings
- Advising on buyouts, business sales, and freeze-out mergers
- Assisting with voluntary or judicial dissolution
- Handling bankruptcy filings and proceedings
Don’t let partnership disputes derail your business. Contact LaFountain & Wollman P.C.