Top 3 Things You Can Do to Avoid Partnership Disputes
A partnership is one of the most common ways to structure a business when ownership of the business is shared by two or more people. When a partnership functions well, all of the partners stand to benefit and profit. A dispute between the partners, however, could threaten the very foundation of the business. To prevent partnership disputes in your business, the business attorneys at Brown & Charbonneau, LLP recommend doing these top three things:
1. Begin the Partnership with a Written Partnership Agreement. While the law does not require you to execute a partnership agreement, doing so will go a long way toward avoiding future disputes. You are also not required to work with an attorney when drafting your partnership agreement; however, if you consider the importance of the agreement, you would be wise to do so anyway. While the agreement you create will need to address any unique issues relating to your business, most partnership agreements will cover, at a bare minimum, things such as:
- The division of ownership among the partners (such as 50/50, 50/25/25, 60/40)
- The capital contribution of each partner
- How additional capital contributions are to be handled if necessary
- The duties and obligations of each partner
- Partnership compensation
- How distributions are to be handled
- Decision making procedures
- Conflict resolution procedures
- What happens if a partner wants out of the partnership
- Conditions that can lead to termination of the partnership
- Dissolution process
2. Create Clearly Defined Roles and Areas of Authority. When two or more people decide to start a business and form a partnership, it is safe to assume that all the partners have an interest in the type of business being formed. That does not, however, mean that each partner should play the same role in the operation of the business. Even if all partners have the same percentage of ownership, they cannot all run the business. Deciding ahead of time what role each partner will play in the operation of the business, and specifically what authority each partner will have, can be crucial to preventing disputes down the road. One partner, for example, might be better suited to run the day to day operations while another might be more comfortable handling the accounting, ordering, and record-keeping. However you decide to divide your roles, you should put the details of each partner’s role in writing – preferably within the partnership agreement. As with most aspects of your partnership agreement, you cannot include too much detail. Vague or ambiguous provisions of any agreement are ripe for disputes that can lead to litigation.
3. Address Potential Disputes Early and Aggressively. Despite your best efforts, disputes are likely to occur at some point during the life of the business. The worst thing you can do when they do occur is to let them fester. Discuss the issues early and openly. If you are not able to reach an agreement at that point, look to your partnership agreement. If the agreement was properly drafted, there should be a section on dispute resolution. It may call for the partners to try mediation or another form of alternative dispute resolution before resorting to litigation or dissolution. If so, go into the mediation with an open mind and do your part to try and reach a resolution. If all else fails, and litigation appears inevitable, it is time to retain the services of an experienced partnership dispute attorney.
Contact an Orange County Partnership Dispute Attorney
If you have additional questions or concerns regarding partnership disputes, contact an experienced Orange County partnership disputes attorney at Brown & Charbonneau, LLP for more information. Contact the team today by calling 714-505-3000 to schedule your appointment.
For more information on partnership disputes visit https://bc-llp.com/resolve-partnership-dispute-california/.