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10 Ways to Avoid and Resolve Partnership Disputes

Partnership disputes are not uncommon, even for the closest of friends. Small disagreements can suddenly blow up into major disputes that leave the business’ future in doubt.

Fortunately, business disputes can be avoided and resolved. However, it will take some wise thinking, maturity and potentially some investment of money and time. There are several resolutions options available for those who get into partnership disputes:

Top Partnership Dispute Resolution and Avoidance Actions:

1. Mediation

Mediation is a carefully structured process where a neutral, third-party mediator helps business owners find a resolution that allows them to remain in business together.

Mediators will use negation and communication techniques to help improve the way things are currently run, allowing the partnership to have a stronger future.

Mediation generally requires both partners to participate actively. So if one of you is too stubborn to look to improve, this option might lead to the same roadblocks.

Meditation is considered an inexpensive way to resolve partnership disputes.

2. Written Agreements – Operating Agreements and Partnership Agreements

Written agreements can be a great way to structure your business relationship in a way that helps avoid disputes. You can deploy written agreements at any time, but using proactive provisions from the start is advised. Depending on your type of business, you may need an operating agreement or a partnership agreement.

The agreement should, at the very least, define:

  • How much control each individual has;
  • Each partner’s role;
  • Each partner’s obligations and duties;
  • Capital contributions;
  • How contributions will be handed;
  • Compensation and distributions;
  • How you will make decisions;
  • What actions will be taken when there is conflict;
  • What will happen if a partner fails to perform their duties;
  • What will change and happen if a new partner arrives, an existing one withdraws, investments arrive or if an ownership percentage changes;
  • Under what circumstances can a partner, or the business, be terminated.

Ensure that all written documents are as clear and detailed as possible. If you’re not careful with that, you can end up doing further damage as there will be such uncertainty over what is expected of one enough.

Get each other on the same page for all possible scenarios and have the document signed off. When future disputes arise, you can refer back to your written agreements.

3. Hire a Lawyer to Draft Documents

Working with an experienced attorney when preparing documents such as a partnership or operating agreements is highly advised.

  • Business partnership dispute lawyers may cover scenarios you weren’t even aware of.
  • Watertight partnership documents can reduce the chances of a dispute arising and provide easy resolutions.
  • Discussions with a lawyer can help clarify your understanding of what’s expected of you.
  • Ensures legal documents are prepared under state laws.
  • Removes the chance of disputes during document drafting.

4. Establish Buyout Agreements

When forming a partnership agreement, you can establish buyout agreements that detail the terms and conditions for if someone wants to buy out a partner or shareholder.

Buyout agreements can be added at any point but may require mediation or arbitration if a dispute arises during the implementation.

Buyouts can be an alternative dispute resolution if partners genuinely feel they can no longer work together but want the business to continue.

Legal counsel is crucial in the negotiation and execution of any buyout.

5. Take Time With Your Business Partner to Focus on Solutions

Like in any relationship, many disputes arise and worsen due to a communication breakdown.

If there is a partnership dispute, you should dedicate time to discuss it. Juggling conversations and negotiations while your head is focused on other tasks will only result in further tension.

Ensure you and your business partner focus on solutions rather than the problem. Your goal is not to win the argument but to find a solution that helps the business move forward. Playing the blame game here never works.

6. Sell Out to New Owners

Another alternative dispute resolution is to sell out to new owners. If the business has a future, but there is a clear desire for the partnership to end, then you may both benefit from a sell-out.

Buyers are often found through existing employees, competitors and business brokers. A valuation and legal counsel are imperative in this scenario.

7. Freeze-Out Merger

In partnership agreements where interests are not equal, the majority owner can ‘freeze out’ minatory owners with a merger with a newly created company owned by the majority owner.

The minority owner will be forced out but paid fair market value for their interests.

Hiring a business dispute attorney is critical in transactions such as these.

8. Dissolution

In the worst-case scenario that both the business and partnership aren’t salvageable, then the dissolution of the corporate entity may be chosen instead.

If this is agreed, you may simply need to:

  • File paperwork with the state
  • Pay off creditors
  • Sell remaining assets
  • Distribute processed per partnership interests

Statutory laws also allow you to make a judicial dissolution of a business by filing a lawsuit.

In these scenarios, you will lose control over the process and wait for the judge’s decision.

9. Bankruptcy

If financial despair has led to your partnership dispute and liabilities of your business exceed its assets, then it may be worth considering filing bankruptcy.

Bankruptcy may allow you to restructure the debt and continue to operate rather than wallowing in debt.

In other scenarios, full liquidation may be suitable.

If you are considering these alternative dispute resolutions, you should contact an experienced attorney as soon as possible.

10. Litigation

If a partnership dispute arises due to misconduct, legal action may be required. For example, misappropriation of assets, fraud, breaches of duties and irresponsible behavior can result in lawsuits between partners.

By contacting an experienced business attorney, you can use litigation to take action against the violating individual to reward financial damages to the damaged parties.

Most Common Reasons for Partnership Disputes

While many partnership disputes are caused by tensions in personal relationships, the most common causes include:

  • Breach of contract;
  • Differing visions for the company;
  • Fraudulent activity;
  • Interference with a contract;
  • Lost business opportunities; and
  • Misappropriation of assets or business opportunities;
  • The division of assets during dissolution.

Contact a Business Partnership Dispute Lawyer in Florida

If you need legal support for a partnership dispute, then contact our experienced Florida business partnership dispute lawyers today.

Caitlin Szematowicz at Battaglia, Ross, Dicus & McQuaid, P.A. has extensive experience that can help you in every step, from document drafting to litigation.

Contact us today to schedule a free consultation.

 

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