In our last post, we discussed making the decision to choose the correct business entity for your new business. Starting a business, especially one that involves more than one person can be a rewarding challenge. Business partnerships can be great in that several people working together can accomplish much more than a single person ever could.
However, what steps have you put in place for conflict prevention? Unfortunately, partners inevitably disagree, and when they do, it can evolve into a business partnership dispute if proper planning has not been done ahead of time. In our experience, some common scenarios where partnership disputes occur are:
- A partner is displaying poor performance, poor conduct, or a lack of dedication to the operation of the business, and the other partner, or partners, feel the under-performing partner is receiving undue compensation.
- One partner would like to expand or change the range of services or products the business originally agreed to provide and the other partner(s) disagree.
- A partner is looking to retire from the business partnership.
- A partnership is looking to recruit more partners, and there are disagreements over the role these new partners would play and the compensation they would receive.
In any of these scenarios, the partners involved could be facing a litigation process that can be time consuming and costly for both the individuals and the business itself. People disagree about things, it is inevitable. However, knowing how to prevent disagreements from impeding your success or turning into grounds for litigation is imperative as you build your business.
In this blog post, we’ll discuss four ways to avoid partnership disputes. And, if that isn’t possible, how to effectively deal with partnership disputes when they occur.
1. Create A Written Agreement
When you begin any sort of business partnership, make sure you have a written agreement before moving forward. We can help with this. Better to spend a little money now on a partnership agreement than potentially spend huge sums of money in the future because your business does not have an agreement in place to help resolve disputes.
Your written business agreement should clearly define the following things:
- Percentage of control of each partner
- The role, duties and obligations of each partner
- How much capital is to be contributed immediately by each partner
- How additional capital contributions will be dealt with
- Compensation and distribution of profits
- Procedures for decision-making and breaking deadlocks
- What to do in worst-case scenarios
- When and what circumstances can lead to the termination of the partnership
2. Create a Thorough Decision Matrix
A great tool for avoiding potential disputes in a business entity or organization is creating a thorough decision matrix. A decision matrix is defined at BusinessDictionary.com as “a table used in evaluating possible alternatives to a course of action.”
Taking the time to carefully consider possible scenarios you will face with your business, and business partners, now might save you valuable time in the future when a potential dispute arises. Having an outlined plan that will guide making tough decisions in a non-biased way you can make these potential disputes much easier to handle when they do come up.
3. Talking through Potential Disputes
If a dispute does come up, try your best have a conversation with your partners to find a solution. Set up a meeting and make a reasonable effort to discuss possible ways to fix what is wrong. In your conversation, you may want to revisit your original written business agreement.
If the dispute does not fall under an outlined section of the agreement, you should consider updating your business agreement or revising it to reflect the current state of the business. The best-case scenario is that you are able to move forward having resolved the dispute internally.
4. Hire a Mediator for Businesses
If talking through the dispute internally is not an option, you should consider hiring a mediator to help you. Many communities have mediation centers that have volunteer mediators or low-cost mediation services. If there is a small business association in your area, check with them to see if they have a mediation program specifically for businesses. You can also search your phonebook or online for “mediation” or “conflict resolution.”
If your mediation is unsuccessful, you haven’t lost anything and you have probably learned a lot about the other person’s perspective. You can still seek legal action if that’s what you feel needs to be done.
You May Need To Consult Legal Help
Many business partnerships will inevitably face a dispute that turns into a legal matter. And if that’s the case, hopefully you had your written agreement in place. Either way, you should seek legal help to understand your rights and obligations and the situation you are in so you can move towards partnership dispute resolution.
An experienced attorney will help you navigate your options and consider the advantages and disadvantages of each option. It is important to address and resolve partnership disputes early before they cause irreparable damage to your personal and professional life.
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