Business partnership disputes can cost the involved parties a pretty penny. Not only are there lawyer consultation fees, but the time that should be used running operations is instead wasted on solving the dispute. Here are three tips that will help business partners avoid a messy partnership dispute down the road.
- Involved parties should hire a civil litigation attorney to help draft a partnership agreement.
When two or more people go into business together, all parties feel like they can trust one another. This trust leads to the skipping of important preventative measures like drafting a formal partnership agreement. They’ll instead shake hands and go the verbal agreement route. The problem is that when a dispute arises between the parties, this verbal agreement is no longer a good idea. What may have been said between the parties changed over the process, or each of the parties remembers the agreement differently.
Therefore, a business partnership should work with an experienced attorney to craft a formal, written partnership agreement. It will ensure each party has their proverbial I’s dotted and T’s crossed. It helps to make clear the business’ structure and what each party expects in the partnership. It also helps to make any disputes that arise easier to handle because there are contractual steps that each party will take to resolve the issue(s). Each of the parties is advised to consult their separate attorneys so they can review the partnership agreement to make sure that it is fair and balanced for everyone involved.
- Review the partnership agreement’s dispute resolution process with all involved parties (including shareholders).
As much as we want to assume that we’ve made a sound decision in choosing our business partner(s), it’s best to ere on the side of caution. Therefore, you want to review the agreements before a dispute arises. Be open with the discussion. Consider the steps that the involved parties will take to resolve different types of potential disputes. We recommend that all parties remind each other that first and foremost, this is a business arrangement. That means that personal feelings should be left out of the dispute. The focus should be solely on the business. It’s also helpful to keep in mind that different disputes will require different types of resolutions. Informal communication can help resolve a small dispute, for example. A bigger dispute, in comparison, may need the help of a neutral third-party mediator to help quell tension. If worst comes to worst, all involved parties should understand the buyout options and what could happen if a resistant partner isn’t willing to leave the business voluntarily.
- Assume that the business will grow and expand and discuss how workloads will be divided early on.
Businesses and those involved in them should expect that things will continue to change for various reasons. Change can be exciting, but it can also be problematic. One of the things that will change is the amount of work the parties involved in the business will have to take on. If the workload feels uneven between the different parties, resentment will begin to grow. “Why am I left doing all this and the others aren’t doing much of anything,” one of the people involved may ask. In order to avoid these types of situations, we advise that all involved parties lay out their respective expectations of who will do what as the business picks up. Consider creating a plan that outlines the distribution of work among the parties in a fair way, and leaves room for flexibility as things change. This will also prevent the parties from assuming that one of the other partners isn’t doing enough work, especially when there is a written division of tasks to refer to.
Consulting a civil litigation attorney early on (and keeping them around so that they can answer any lingering questions) will help to reduce any business disputes that may arise in the future. Warren S. Dank has experience with all types of civil litigation and can help your partners and yourself come to an agreement.