One of the easiest types of businesses to start is a partnership. There are generally lower startup costs. Additionally, partners tend to have more access to capital as well as a greater borrowing capacity. This is because they have the ability to help fund the business with their personal assets. There is, however, a greater risk if the business fails. Partners risk losing not only their business, but also their personal assets. Because of these inherent risks, one of the first things that you should do when starting a partnership is to establish a partnership agreement. Partnership agreements help avoid or resolve business partner disputes. Read on to learn more about partnership agreements and how they will help you settle business partner disputes.
In getting your partnership established, writing your partnership agreement should be paramount of all the tasks to get done. This protects all partners involved in the event of a dispute. This agreement should include:
- The purpose of the partnership
- Management structure
- Capital structure
- Provisions for non-judicial resolution of disputes (i.e. mediation or arbitration)
What if I have business partner disputes & no partnership agreement?
Many times, a partnership will be established without a partnership agreement. Either the partners did not think it would be necessary or they were not aware that they would need one. Sometimes a dispute arises before the partnership agreement can be drafted. What are you to do in these situations? Under these circumstances, it is crucial that you speak with your business attorney right away. Your attorney will help you draft a dispute resolution. Even if there is an existing partnership agreement without a dispute resolution clause, your business attorney can assist you with amending or modifying the existing agreement to include one. This is important, as the dispute resolution clause can help to protect, you, your business, your partners, and anyone else involved.
How the Conflict Resolution Clause Helps
When a partnership dispute arises, your business attorney can consult with you in regard to how best to proceed while still conducting business. If you are unable to resolve the conflict on your own, following the procedure laid out in the dispute resolution clause of your business agreement, your, your attorney, and your partners will try using mediation or arbitration to help resolve the conflict. Dissolving the partnership may be necessary if the dispute still cannot be solved. This is process that can be handled outside of court.
It is possible to stop many business partner disputes before they arise by having structures and systems. These structures need to clearly outline everything and get to work early in the partnership. Communication is key in these scenarios, so things like regular structured meetings between all partners with clear agendas and total transparency between partners regarding budget and business performance and function.
If you still have questions, or if you are currently in a conflict with partners, contact your business attorney today.