Partnerships can be a great way to build and grow a business. When they work well, partners complement each other’s strengths and weaknesses, and share the risks and rewards.
Still, it’s not unusual for disagreements to arise between partners. If they aren’t resolved quickly, they can disrupt operations and put the business at risk. Knowing how to respond to a partnership dispute can significantly affect the outcome.
Why do disputes happen?
Partnership disputes rarely appear out of thin air. Instead, they often develop gradually and quietly. A partner may feel they are contributing more time or resources than the other partner, or they may have different visions for the company’s future. Allegations of misconduct, such as misuse of company funds, can escalate a disagreement into a legal conflict.
Addressing any dispute should start with a review of your partnership agreement (if you have one). This document often outlines how profits and losses are shared, how decisions are made and how to handle disputes. Some agreements require mediation or arbitration before pursuing litigation.
If your partnership doesn’t have a written agreement, the regulations outlined in California’s Uniform Partnership Act of 1994 will apply. Unfortunately, the state’s default rules may not reflect your and your partner’s original intentions. This can make resolving disputes even more complicated.
The best approach is to resolve the issue early through direct, honest communication. Setting aside time for a focused discussion of the problem can help clarify misunderstandings and identify possible solutions.
If emotions are running high or direct communication is no longer effective, alternative dispute resolution (ADR) methods may be the next step. Mediation allows a neutral third party to facilitate the discussion so both parties can reach a mutually acceptable resolution. Arbitration is a more formal process where an arbitrator makes a decision.
When a partnership dispute can’t be resolved informally, it may be necessary to pursue legal action. The guidance of a legal professional throughout the process is essential to avoiding mistakes and thoroughly understanding your options.