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Tips for Avoiding Partnership Disputes

Starting a new business with a partner is exciting, but partnership disputes are bound to happen. Hopefully, you have spent time considering whether your partner is trustworthy and has a keen business sense. Most people who go into business together get along and feel excited about their new company’s future success. However, starting a business is incredibly challenging, and making your business profitable can be difficult, especially during these challenging economic times. Many business owners do not consider what will happen when a dispute arises between partners. By taking the time to create a partnership agreement and discuss common conflict areas, you can avoid partnership disputes.

Draft an Operating Agreement

In the excitement of starting your new partnership, you may not want to spend significant time thinking about future conflicts. It is understandable to want to hit the ground running, but taking the time to drop a partnership agreement can significantly help you and your partner. Written business plans and partnership agreements are crucial for any business’s success. In your partnership agreement, make sure that you address each partner’s responsibilities, ownership stake, and role in the business.  

Your partnership agreement should also address how you will settle disputes when they arise. Some business owners agree to submit to binding arbitration when conflicts arise to keep their disputes out of the court system. Others will decide on less formal mediation to resolve conflicts. Your partnership agreement can also address what you would like to happen should one partner decide to leave the business or should you decide to sell the business. 

Will you be able to buy out your partner who wants to leave? What if you cannot decide whether you should sell your business or not, or on a sales price? An experienced lawyer will help you address all of these questions and more in your partnership agreement. It can be difficult to talk about unpleasant matters that could arise in the future, but it is crucial to avoid conflict. It is better to discuss challenging issues now and know where you both stand then to try to deal with them as they arise.

 

Take Time to Resolve Your Dispute

Many of us tend to put off contentious issues and hope they go away. However, if you and your partner are involved in a dispute, the best thing you can do is sit down and discuss it. Workdays are often busy, and having difficult discussions is often better in a calm, relaxed setting. Perhaps you could have the conversation on a Saturday morning over coffee or during a relaxing dinner. When you do have the conversation with your partner, try to focus on coming to a mutual agreement rather than proving a point or winning an argument. You may want to consider hiring a third-party mediator so you both feel like your concerns are being heard and so the mediator can help you agree. Agreeing is often the best possible outcome because it may spare you from costly litigation. In some cases, you may not be able to come to an agreement, in which case you should hire a lawyer as soon as possible. Your lawyer will be able to represent your best interests throughout the process.

 

Hire a Personal Attorney

In a partnership, you and your partner want the same thing – mainly, for your business to be profitable and successful. However, you are still an individual with legal rights yourself. One of the best things you can do is hire an attorney to represent your interests and review your partnership agreement. Your attorney will have a legal duty to represent your personal best interests rather than the interests of the company or the interests of your partner. If you expect your partnership to become your career, you cannot afford your partnership agreement to be sub-par. Investing in high-quality legal representation will ensure that you avoid potentially costly litigation down the road. Your attorney will be able to protect your interest and find any red flags in your legal documents so you can avoid them in the future.

 

Hire a Mediator

As mentioned above, you may need to hire a mediator to help you negotiate an outcome that works for everyone. Mediators do not favor one side or the other. Instead, they listen to both people present their positions and opinions in a non-confrontational way. Mediation is often more productive than simply meeting together when a dispute becomes significant. Mediators can help both partners keep their discussions practical and on task. A good mediator will have extensive experience in all different scenarios, and they will use that experience to help the partners resolve their dispute. Mediators can also help partners understand whether or not they will be able to resolve their dispute. In some cases, mediators help partners know that they may need to take another path, such as one partner buying the other partner out.

 

Discussing Your Options with a Lawyer

After you meet with your business partner and discuss the issue, you may be able to resolve it effectively. Or, the dispute may become worse. If you still cannot resolve the issue and feel as though you are in a deadlock with your partner, you may need to consider separating amicably or buying out your partner. Once both sides discover that the situation is not resolvable, you can try to split up. 

Are you starting a business with your business partner? Have you already started a business, and you need an attorney to draft formal documents? Or, do you need an attorney to review your existing documents? If so, the experienced business lawyers at Fox & Moghul, Attorneys at Law, are here to help. Contact us today to learn how we can review your partnership agreement and protect your rights. 

Fox & Moghul - Real Estate

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