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Strategies for resolving a partnership dispute

On Behalf of | Dec 28, 2023 | Business Law

Going into business with a partner can be an exciting new venture. When both of you share an idea for a business and the desire to work together to watch your business grow, your potential for growth and success may seem unlimited.

A partnership is an attractive option for a business structure for many reasons. Partnering with someone can give you a broader range of knowledge for your business. Your business partner might have skills and expertise in areas that you do not and vice versa.

Having a partner means you share in business costs and responsibilities, allowing you to pursue more business opportunities. A partner also reduces the stress involved in running a business. You are not going it alone. Your partner is there to provide another perspective and provide support when you need it.

Despite these benefits, there could come a time when you and your partner have a disagreement or misunderstanding. Before this develops into a dispute that threatens the partnership altogether, there are some strategies that you can use to facilitate a resolution.

Draft or update a partnership agreement

If you haven’t already formed your partnership, you can do so by drafting a partnership agreement. If you already have one, perhaps it needs updating to account for a change in circumstances.

The idea behind a partnership agreement is for all partners to understand their rights, duties and responsibilities to the partnership. Your partnership agreement is unique to your business, so you should not use a standard or template agreement.

Rather, your partnership agreement should state the responsibilities of each partner, their capital contribution requirements and how each will be compensated. A good partnership agreement will also contain information about how decisions are made or disputes are resolved.

Communicate with your partner

Good communication goes a long way toward resolving partnership disputes. As with any other interpersonal relationship, misperceptions, confusion and misunderstandings happen without open and honest communication.

Find a quiet, private time to sit down and talk with your partner. Put emotions aside and focus on the facts of the dispute. Listen to their side without interrupting or getting defensive.

Find common ground. These techniques will usually result in a successful plan for resolving the dispute.

If your dispute still cannot be resolved, consider bringing in a third-party such as a mediator to help. Your partnership agreement could include this as a requirement when facing disputes.

The role of a mediator

A mediator must be neutral about the dispute and cannot decide the dispute for you. Their goal is to help you discuss the dispute and offer suggestions for resolution. They can potentially assist with modifying or drafting a partnership agreement to reduce the chance of similar disputes in the future.

In some situations, the dispute cannot be resolved and litigation becomes a looming possibility. Before you run to file a lawsuit, a professional review and evaluation of your situation is best.

Partnership disputes that end up in litigation rarely end well. Your relationship with your partner will likely never be the same and your partnership may end up dissolving due to the conflict, no matter the ultimate outcome in court.