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Steps to take to avoid partnership disputes

Many entrepreneurs in California elect to form partnerships when they go into business with others. While this type of arrangement is often productive, problems may develop as the business matures and grows. Other partnership disputes may occur when new partners who may have differing views about how to move the business forward are brought into the picture. Partners who fail to address these issues in a timely manner run the risk of turning a mild disagreement into a serious confrontation.

Many partnership disputes may be avoided by identifying potential areas of disagreement and putting contingencies in place. An operating agreement that clearly defines roles and responsibilities should be drawn up and signed, and it would be prudent for this agreement to outline how future conflicts will be resolved. The language of this document should be clear because its purpose is to provide enforceable action plans for anticipated scenarios.

Disputes between partners may also arise when a desire to get a business moving leads to important issues being left unresolved. A partner struggling financially may become bitter when a partner with deeper pockets insists that profits be reinvested, and conflicts often arise when a partner must shoulder more responsibility due to their experience or qualifications.

Many partnership disputes can be avoided by choosing partners who possess similar outlooks and values while offering complimentary skill sets. An experienced business law attorney may be able to assist partners in identifying areas of potential disagreement, and they could help to avoid future disputes by drafting an effective operating agreement. An attorney could also recommend a values agreement be adopted. This document allows partners to establish their ethical commitments as well as outlining the strategies for growth and the qualities that will be looked for in future partnership candidates.

Source: Forbes, "How To Avoid A Partnership Dispute", Shane Robinson, November 16, 2014

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Klein & Wilson

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