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5 Proactive Ways To Prevent Business Partnership Disputes

by | Oct 10, 2023

Any kind of business partnership dispute – whether it’s between “shareholders” or “members” or “partners”, depending on how your business is structured – is the last thing that business owners want to deal with.

Because partners have a financial stake in the company and determine the company’s direction (by majority), these types of conflicts can be detrimental to your company’s stability if they’re not handled with care! They are often expensive in terms of time and productivity to resolve. If finding a resolution involves the help of attorneys, it can cost thousands or more in legal fees. If a successful resolution can’t be reached, the company could face being dissolved.

Partnership disputes can begin for a variety of reasons. Maybe partners disagree over something like spending significant amounts of capital on a certain venture, or creating a new department, or expanding the business into a new industry, or relocating – something about having conflicting visions of what the company’s future should look like. Maybe someone withheld, or was accused of withholding, financial information from the other partners, or having a conflict of interest in some financial dealings. Maybe the partnership agreement was broken in some way.

Whatever the cause, reacting after the fact, even if you react quickly, is still going to cost you time and money; that’s why it’s always better to avoid partnership disputes before they start happening in the first place. If you take a proactive approach, you can significantly minimize the risk of these occurring!

5 Proactive Ways To Prevent Business Partnership Disputes

Here are several proactive measures that any business can and should take to prevent business partnership disputes in order to protect the long-term health of the organization:

1 (Most Important) – Have A Strong Attorney-Drafted Partnership Agreement In Place From The Beginning. 

This is the cornerstone of preventing business partnership disputes. The vast majority of disputes go so far because the partnership agreement was ambiguous in the first place! A well-structured, legally binding document that an attorney has reviewed and approved (if not created) that lays out the duties of the partners, procedures for making decisions, and mechanisms for resolving conflicts. It defines each partner’s ownership percentage, dividend preferences, voting rights, and authority, as well as the conditions under which they can exit the business.

If you have a good partnership agreement, disputes have a harder time escalating – the document puts out sparks before they can turn into fire!

2 – Make Room For Regular, Transparent Communication. 

You need your partners to trust you, and each other – the best way to facilitate that is open, clear communication that makes everyone feel heard and well-informed. When people feel that way, they are less likely to resort to legal action or cause serious problems. Provide regular financial reports and updates so no one gets suspicious about the company’s financial health; engage partners in discussion about the company’s strategic plans; hold regular meetings to answer questions and address concerns, as well as gather input.

3 – Ensure Organizational Clarity. 

Starting to see a pattern here? Clarity is really, really, really important!

If shareholders don’t know what their roles and responsibilities are – and are not – then they are much more likely to try to exert undue influence, get into power struggles, squabble during the decision making process, micromanage, and disagree on who has the final say on matters.

You can avoid that by clearly defining the roles and responsibilities of the board of directors, management team and key personnel, and other shareholders when it comes to day-to-day operations, strategic decisions, and specific areas of oversight.

4 – Keep Your Legal Documents Up To Date.

Periodic legal reviews of your company’s essential documents, like the partnership agreement and bylaws, ensure that everything remains up to date and relevant to your current business trajectory. An attorney can help you identify whether your documents are compliant with changing laws and regulations, whether your agreements reflect your business opportunities, and whether any potential issues threaten risk.

5 – Have Strong Buy-Sell Agreements (Exit Strategies) In Place 

Buy-sell agreements, or buyout agreements, are powerful tools for preventing partnership disagreements from turning into disputes. What they do is allow partners to buy each other’s shares under conditions outlined in the agreement – they give a clear exit strategy for partners who may not want to stay partners.

A good buy-sell agreement will outline “trigger” events that lead to a buyout, such as a disagreement over the company’s direction, or death, disability, retirement, etc. These events reduce uncertainty about when departure can occur, and under what terms. A good buy-sell agreement also specifies how shares will be valued during a buyout (so everything is fair for everyone involved) and how the buyout will be funded (by the purchasing partner? The company itself? External funding?).

Want More Specific Legal Guidance? Trust Pitcoff Law Group!

Our New York City business attorneys actually focus on partnership disputes (both the prevention of and the handling of!) – it’s our preferred type of case to take on! This means that we are intimately familiar with the situations that lead up to partnership disputes and so we are also highly knowledgeable about how business owners can prevent them.

We have over 65 years of combined experience on our team giving clients the sound legal counsel they need to truly be proactive and make their business goals a reality. If you need legal documents reviewed or your partnership agreement or buy-sell agreements strengthened, we can assist you! Past and current clients recommend us for our clarity and quickness of communication. We’ll work closely with you to provide tailored representation for your unique business’s needs!

Sometimes, you can do everything right and a dispute can still arise. In those situations, we are prepared to offer you skilled and aggressive resolution strategies so you can achieve the best outcome in the most efficient way possible. We’ll do everything in our power to stop you from being burdened by dragged-out litigation or dissolving your business. Call Pitcoff Law Group today for a complimentary consultation. We’ll explain your options!