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How to Manage Business Partners and Resolve Partnership Disputes

2/3/2022
 

No matter how well matched you are with your business partner, disagreements and conflicts are inevitable. But conflict does not have to derail your partnership.
By preparing and setting up conflict resolution tools ahead of time, you and your partners can better weather the storms that come with the wild ride that is business ownership.

It’s great when business partners share the same values and have a track record of working well together. But circumstances change all the time, especially in a COVID-19 world – which can put pressure on even the strongest business relationship. Or you and your partner may be working together for the first time, still figuring out each other’s communication styles.

Either way, you can take certain steps to better position your partnership for success.

How Do You Avoid Partnership Disputes?Not all conflicts are inevitable. Some can be avoided with the right planning and foresight.
By minimizing avoidable conflicts, your business partnership can operate smoothly with fewer bumps, especially when you’re first getting started. The conflict resolution frameworks you put into place early on could end up saving your joint venture down the line.

Give Clear Decision-Making PowerIf you plan to enter into an equal partnership with one other partner, you might figure that a 50-50 split of decision-making power makes the most sense.
But a 50-50 split between two partners sets you up for a potential gridlock – a 1-vs-1 stalemate when you disagree. If you both refuse to compromise, your partnership may be unable to move forward in any way and you may have to dissolve your venture.

To avoid this stalemate, you should decide early on who will get ultimate decision-making power in the case of a disagreement. This could mean that you choose a 51-49 split between partners instead. Or you could choose a “designated decider” third party to break any stalemates – this could be a trusted business attorney or another stakeholder in the company.

Create a Robust Partnership Operating AgreementYour partnership operating agreement is the single most important document when it comes to setting up your business for success. You may be excited to get started on your partnership and hit the ground running, but taking the time to properly consider and establish your partnership terms first could save you untold headaches down the road.
Some of the most important terms in your partnership agreement involve:

  • Establishing the purpose of your partnership. What products or services will you be selling? What actions will you need to take to make your vision come true?
  • Deciding what governing law will apply. In the case of a dispute, which state laws should determine the outcome? Which courts would you prefer to hear your case?
  • Detailing each partner’s ownership, responsibilities, decision-making authority, and partnership contributions, such as capital, expertise, assets, or time.
  • Determining how profits and losses will be divided among partners. Make sure everyone is on the same page when it comes to what they’ll be earning and what liabilities they can expect to take on for the partnership.

Managing expectations is key when it comes to minimizing unnecessary conflict. Your partnership agreement should reflect your vision and keep your venture on track.
You could also include a mission or values statement along with your partnership agreement, where you set out the culture, growth philosophy, and commitments of your venture.

Meet Your Partner(s) in the MiddleEvery partnership is unique. Consider how you and your partner complement each other. Cater to each partner’s strengths whenever possible and recognize your weaknesses.
Transparency is critical when it comes to the success of your partnership. You and your business partners must be able to communicate honestly and effectively with one another.
Problems often arise when communication breaks down, so one solution could be to schedule a regular meeting where partners can freely communicate their concerns. You could even detail a mediation plan in your operating agreement that gives you a path forward when conflicts arise.
Bring a Professional Into the RelationshipDespite the professional nature of business, partnerships can get extremely personal. Bringing in an objective third party such as a business attorney can be a game-changing source of support, helping partners anticipate and resolve difficult issues before they become problems.

When you’re in the thick of starting your business partnership, the bigger picture is often hard to see. A business lawyer can help you focus on your goals with effective strategies catered to your partnership’s unique needs. An objective professional can also make sure each partner’s needs and expectations are met when they might otherwise get overlooked.

How Do Business Partners Resolve Conflict?Conflict does not have to tear apart your partnership. The strongest partnerships aren’t free of all conflict – rather, they can successfully work through conflict to keep moving forward.
Address Disputes Early OnWhen needs don’t get addressed, they can fester into resentment. Have a conflict resolution procedure in place to help partners bring up any issues before they get worse. Hopefully, you and your partners have a regular meeting where you check in with each other. If you don’t, you should bring up any issues with your business partners as soon as they arise.
This is where a third-party professional can really help grease the wheels of communication.
Partnership MediationMediation involves bringing in a neutral third party who acts as an intermediary between two disputing partners. Business mediators are trained in communication, negotiation, and conflict-resolution techniques. Mediation is a great alternative to litigation – going to court to resolve a partnership dispute can get complicated and expensive.
When you choose mediation over litigation, you and your partner negotiate the resolution instead of a judge deciding the outcome of your dispute.
Business partnership disputes are bound to happen. When they do, you should keep your partnership’s ultimate goals in mind. Ideally, you and your partner can come to a resolution amicably and effectively. The more prepared you are for the possibility of a dispute, the better chance you’ll have at resolving the issue and continuing your venture’s growth.
Call the Philadelphia area offices of Holmes Business Law now at 215-482-0285 or use our contact form to prepare your partnership for success.

Author

Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way. When you're looking for a business lawyer in Philadelphia, the Main Line or New Jersey, we can help.

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This website and its content herein constitutes attorney advertising.  Any content on this website should be construed as informational, not legal advice.  No information on this website is intended to create an attorney-client relationship.  Only a signed fee agreement between Sarah E. Holmes and the client will establish an attorney-client relationship.  Use of any information on this site is provided “AS IS” with no warranty of any kind, either express or implied.  Always consult with a licensed attorney in your own state for legal advice.