A partnership can be a powerful tool for growing your business, but it can also put your enterprise at risk when you and your business partner get embroiled in major disputes. We handle business litigation cases here at Gaslowitz Frankel, and we’ve seen many cases caused by partnership disputes that escalated into litigation.
Why do these disputes happen, and what can you do to avoid them and maintain a healthy working relationship with your business partner?
5 Common Partnership Disputes
Partnership disputes have 5 common causes:
- Poorly-defined roles
- Differing visions for the company
- Lack of communication
- Financial disparities
- Negligence or wrongdoing by a partner
Related Blog: Business Disputes: When To Bring in a Lawyer
1. Poorly-Defined Roles
This is one of the most common causes of partnership disputes. When business partners don’t have strongly defined roles, it can lead to confusion, resentment, and, ultimately, conflict. Without a clear understanding of their responsibilities, partners may step on each other’s toes, duplicate efforts, or neglect important tasks. This can hinder productivity, erode trust, and create a toxic work environment.
Prevention:
To avoid these problems, it’s crucial to draft a comprehensive partnership agreement that clearly outlines each partner’s roles and responsibilities. This agreement should specify who is responsible for specific tasks, decision-making authority, and dispute resolution procedures. By defining roles upfront, partners can establish clear expectations, avoid misunderstandings, and ensure that everyone is pulling their weight.
2. Differing Visions for the Company
Partnership disputes can arise when business co-owners have different visions for the company. Disagreements over long-term goals, strategic direction, or risk tolerance can create tension and erode trust.
Prevention:
To avoid these issues, it’s essential for partners to have open and honest discussions about their vision for the company before entering into a partnership. You and your partner should clearly communicate your goals, values, and expectations for the future. By sharing your visions and discussing the pros and cons of each approach, you and your partner can identify potential areas of disagreement and work together to find common ground.
3. Lack of Communication
Lack of communication between business partners can be a major source of conflict. Since partners often have different roles in the company, they may have difficulty communicating everything that’s going on in each respective department. This can lead to misunderstandings, assumptions, and resentment.
Prevention:
To improve communication, you and your partner should:
- Schedule Regular Meetings: Establish a routine for discussing business matters, both big and small.
- Practice Active Listening: Give each other your full attention and avoid interrupting.
- Have Open and Honest Communication: Be willing to share your thoughts and feelings, even if they’re difficult.
- Use technology: Utilize tools like email, messaging apps, and project management software to stay connected and share information.
- Seek Outside Mediation: If communication breakdowns persist, consider involving a neutral third party to facilitate dialogue and find solutions.
Related Blog: Situations That Call for an Atlanta Business Litigation Attorney
4. Financial Disparities
Financial disparities can be a significant source of resentment and conflict. If one partner is earning a disproportionate percentage of profits — or suffering a disproportionate percentage of losses — it can create feelings of unfairness and inequity.
Prevention:
To address financial disparities, partners should:
- Review and Adjust Profit-Sharing Arrangements: Regularly assess the fairness of the profit-sharing agreement and make adjustments as needed.
- Establish Clear Guidelines for Expense Allocation: Develop guidelines for how expenses are shared and make sure they’re adhered to consistently.
- Consider Equalizing Contributions: If one partner is contributing more time or resources than the other, consider adjusting the profit-sharing or expense allocation to reflect these differences.
- Consult with a Financial Advisor: It’s always advisable to seek advice from a financial professional to ensure that financial arrangements are fair and equitable.
A well-crafted partnership agreement can help prevent financial disputes by clearly outlining the financial terms of the partnership, including profit-sharing arrangements, expense allocation, and dispute resolution procedures.
5. Negligence or Wrongdoing by a Partner
The worst partnership disputes occur when a business partner behaves improperly, commits wrongdoing in their role, or fails to adequately perform their duties. Negligence or misconduct can erode trust, create a toxic work environment, and hinder the business’s ability to achieve its goals.
Prevention:
If a partner is not performing their job adequately, buying out their share of the business may be a viable option. This can help resolve the conflict and prevent further damage to the business.
If a partner commits wrongdoing in their role, legal steps may be necessary, such as business mediation or litigation. It’s advisable to consult with a business dispute expert to determine the best course of action.
To avoid these issues, partners should:
- Establish Clear Expectations: Clearly define roles, responsibilities, and performance standards.
- Monitor Performance: Regularly assess each partner’s contributions and address any concerns promptly.
- Address Issues Directly: If problems arise, address them openly and honestly.
- Seek Professional Help: If conflicts escalate, consider involving a mediator or arbitrator.
Related Blog: 3 Ways to Resolve Your Business Dispute in Atlanta
Legal Assistance for Partnership Disputes
A contentious partnership dispute can cause relationships to break down, and when this happens, the dispute will usually escalate to litigation. If you’re dealing with this type of partnership dispute, it’s best to seek legal counsel as soon as possible to discuss your options or set up mediation with your partner.
At Gaslowitz Frankel, we handle Georgia-based business disputes. Contact us to set up a consultation to discuss your situation and legal options.
