Partnerships can be a highly effective business structure, combining the expertise and resources of multiple individuals towards a common goal. However, even the most well-intentioned partnerships can encounter disputes that threaten the harmony and success of the venture. When conflicts arise, addressing them promptly and effectively is essential to protect the partnership and its interests.
When faced with a business partnership dispute, strategies are available to help mitigate disruptions to the business and protect the interests of the enterprise and each individual partner to the fullest extent achievable.
Top 10 Strategies to Resolve Business Partnership Disputes
When facing business partnership disputes, it can be helpful to arm yourself with resolution strategies to effectively overcome these difficulties. Here are a few proven strategies that can resolve business partnership disputes:
1. Develop a Detailed and Customized Partnership Agreement or Modify an Existing One
If you haven’t formalized your business partnership with your associates yet, it’s crucial to do so through a partnership agreement. Alternatively, you may need to revise the existing agreement if circumstances have changed. The main aim of a partnership agreement is to ensure that all partners are clear on their respective rights, responsibilities, and legal protection concerning the business.
Since every partnership is unique, using a pre-made template is not advised. Instead, seeking guidance from a knowledgeable attorney is recommended to help negotiate and finalize an agreement that aligns with your business needs. This agreement is likely to include the following terms:
- The roles and responsibilities of each partner.
- The capital contributions required from each partner.
- Compensation structures for each partner and any other stakes they may hold in the business.
- Procedures for decision-making and methods for resolving disputes.
- Protocols for a partner’s exit from the partnership.
Even in an existing dispute, adopting or amending a partnership agreement to address the situation is possible. Our team of attorneys is here to assist with this process.
2. Take Time to Discuss Your Issues With Your Partner
While it may sound obvious, many partnerships break simply due to a lack of communication among the partners. Misunderstandings, suspicions, and tensions can fester without open and honest dialogue. If you’re facing an issue with a partner, especially if it’s a recent development, it’s crucial to initiate a conversation.
The aim is to realign your interests with your partner and address any misunderstandings head-on. Here is how to do it.
- Approach the conversation with respect.
- Focus on presenting facts and set aside emotional reactions.
- Seek common ground as a starting point.
- Listen attentively to the concerns and perspectives of your partner without interruption.
- Establish and follow a plan to resolve the issue.
Depending on the nature of the dispute, involving a neutral third party might be necessary.
3. Use a Mediator
An experienced business mediator is invaluable in navigating potential partnership disputes. They can offer support in various areas, including:
- Crafting, negotiating, finalizing, and adjusting partnership agreements.
- Facilitating constructive conversations and resolutions for conflicts or concerns.
- Achieving resolution, especially if litigation looms or has already begun.
Importantly, a mediator remains impartial. Their role isn’t to take sides or make decisions on behalf of any partner. Instead, they aim to foster communication among the partners and, whenever possible, arrive at a mutually agreeable solution. This resolution could be a partnership agreement, a lawsuit settlement, or even a harmonious exit of a partner from the business.
4. Try Arbitration
When partners struggle to find common ground and reach agreements, they may seek an external party to resolve the issue. Arbitration operates in a manner akin to a trial, albeit with less formality. It offers a swifter resolution process, limits its scope, and reduces the time spent on information gathering (discovery). An arbitrator will carefully consider the perspectives of both sides and render decisions regarding the appropriate course of action. Frequently, the focus of the arbitrator is on identifying practical solutions that serve the interests of both parties rather than favoring one party exclusively.
Partners can choose whether the arbitration is binding, meaning they are legally obligated to abide by the arbitrator’s rulings, or non-binding, allowing either partner to explore alternative dispute resolution methods if they are dissatisfied with the arbitrator’s decisions.
5. Consider a Buy-Out
Sometimes, a dispute can escalate to a point where the involved partners find it untenable to collaborate. Nonetheless, some or all of the partners may desire to keep the business operational. In such situations, one or more partners can buy out the partner or partners who no longer wish to remain in the company.
Ideally, a well-drafted partnership agreement established at the onset of the relationship will delineate the procedure for a buy-sell arrangement. In cases where this isn’t the scenario, a comprehensive valuation of the company becomes necessary to ascertain each partner’s ownership percentage. Subsequent negotiations will take place to define the buy-out terms and identify the partners involved.
6. Think About Selling Out
During partnership disputes, the intensity can often reach a point where none of the business partners are inclined to continue managing the business. If the business remains successful and viable, selling it to a new owner may present the most viable solution. Even in this scenario, assessing the business’s value remains crucial, and referring to the partnership agreement for guidance on the valuation process.
When seeking a buyer for the business, potential avenues include engaging business brokers, considering existing employees, or even exploring interest from a competitor. Whenever there’s a transfer of ownership, it’s essential to collaborate with a reliable business attorney like The Weisblatt Law Firm, PLLC., to guide you through the transaction.
7. Opt for a Freeze-Out Merger
In cases of an imbalance in business partnership stakes, majority owners can “freeze out” minority owners through a merger with a newly established company owned by the majority group. This results in the minority owners being compelled to relinquish their ownership, but they are compensated with fair market value for their interests. Statutory provisions and established court precedents regulate freeze-out mergers. It is crucial to engage the services of a business attorney with expertise in overseeing such transactions.
8. Choose Voluntary or Judicial Dissolution
In certain scenarios, it becomes evident that the business relationship is beyond repair, and the company can no longer function. In such instances, there may be a need to proceed with the dissolution of the company. The dissolution becomes voluntary if the parties involved in the dispute can reach a mutual agreement. In this case, the essential steps involve repaying creditors, completing required state paperwork, selling remaining assets, and distributing the proceeds among the partners.
However, legal intervention may be necessary if the partners cannot reach a consensus on the dissolution process. This entails taking the matter to court, where a judge will decide to resolve the differences. In this situation, one or more partners will initiate a lawsuit and commit to abiding by the judge’s rulings. While litigation may be a last resort, it’s generally advisable for partners to attempt resolution before reaching this stage. Litigation can be costly and has the potential to be a lengthy process.
9. File for Bankruptcy
Partnership disputes can surface, particularly when a business grapples with financial challenges. When the situation reaches a point where debts surpass assets, the business is deemed insolvent. At times like these, filing for bankruptcy may become essential. While contemplating bankruptcy is seldom desirable for any business owner, it can be the most prudent course of action.
Bankruptcy filing provides the opportunity to reorganize debt and sustain ongoing operations. Alternatively, there may be situations where a complete liquidation of the business is required. In either scenario, engaging a lawyer well-versed in the intricacies of business bankruptcy proceedings is crucial.
10. Choose Litigation as a Last Resort
Occasionally, conflicts among partners stem from misconduct committed by one or more of them. This can include breaches of fiduciary duties, misappropriation of assets, fraudulent activities, and neglecting their prescribed duties and responsibilities. These situations can lead to lawsuits between business partners. Initiating a legal case against partners who have transgressed their obligations to fellow partners and/or the company can lead to the awarding of financial reparations to the aggrieved parties. It is essential to seek advice from seasoned litigation counsel to assess potential claims and proceed with any necessary legal actions.
How Can The Weisblatt Law Firm, PLLC., Help You Resolve a Partnership Dispute?
The Weisblatt Law Firm, PLLC. understands that partnership disputes require a nuanced and comprehensive approach. We provide a range of services to help resolve partnership disputes effectively:
Thorough Assessment of Dispute
Our first step in resolving partnership disputes is conducting a comprehensive assessment of the situation. This involves scrutinizing the partnership agreement, if one exists, as well as any relevant contracts, financial records, and communication logs. By gaining a deep understanding of the specific issues at hand, we can formulate a strategic approach tailored to the unique circumstances of each case.
Mediation and Negotiation
One primary avenue we explore is mediation and negotiation. Our skilled attorneys excel in facilitating productive discussions between parties in dispute. Through open communication and strategic negotiation techniques, we aim to reach mutually acceptable resolutions that preserve the interests of all involved parties. This approach often leads to swifter and more cost-effective outcomes, allowing clients to move forward with their business ventures.
Litigation Expertise
In cases where mediation and negotiation prove unsuccessful, we boast formidable litigation expertise. Our seasoned litigators have a proven track record of success in partnership dispute cases. With meticulous attention to detail and a comprehensive understanding of partnership laws, we advocate for our client’s rights and interests in the courtroom. We guide clients through the entire litigation process, ensuring their voices are heard, and their cases are presented persuasively.
Alternative Dispute Resolution (A.D.R.)
Recognizing that litigation is not always the most conducive path, we also specialize in Alternative Dispute Resolution methods such as arbitration and collaborative law. These approaches provide a structured and often more expeditious means of resolving, allowing clients to assert their interests and protect their investments.
Dissolution and Restructuring
In some cases, it may be in the parties’ best interest to consider the partnership’s dissolution or restructuring. We offer expert guidance in this regard, navigating clients through the legal processes involved in winding down a partnership or effecting a strategic restructuring that aligns with the goals and interests of all parties.
Contact The Weisblatt Law Firm, PLLC. Today
Partnership disputes can be highly complex, emotionally charged, and financially burdensome. The Weisblatt Law Firm, PLLC. offers a comprehensive and effective approach to resolving partnership disputes. With a strong track record in partnership dispute resolution, we are a trusted ally for businesses and individuals seeking to navigate the challenges of partnership disputes and find a path forward. Contact us at 855-285-1689 for a free consultation.
Attorney Andrew Weisblatt
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio
