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Can you structure your partnership to avoid partner disputes?

On Behalf of | Jul 13, 2021 | Business Law

There are many reasons partners fall into dispute. Business disagreements are common enough. One partner may favor a strategy that another thinks is a mistake. Intrapersonal issues also come up. One partner may be working noticeably harder than the other partners, or one may be noticeably less productive.

Unfortunately, partnership disputes are as common as they are disruptive. It may be in the nature of competitive people to get into disputes when the stakes are high. Is there any way to prevent partnership disputes?

One option for preventing these disputes may lie in how you set up your partnership in the first place.

Consider agreeing on one partner being in charge

It may be wise to structure your partnership unequally. That is to say, don’t give two or more people equal decision-making power. Distribute shares so that one person is the controlling partner. Consider having everyone sign a statement of control that designates the controlling partner as the final arbiter of disputes within the company.

This may not be an easy decision when each of the partners has bought in at approximately the same level. However, it could ultimately save you a lot of time, money and frustration. The very structure of your partnership needs to undermine the possibility of serious, damaging disputes.

Make a dispute resolution plan up front

You will also need an overall dispute resolution clause in your partnership agreement. This could specify not only that the controlling partner gets the final say, but also what happens when another partner can’t abide by the controlling partner’s decision.

Or, if you must have equal partners, the dispute resolution clause could help you navigate the disputes that could ultimately arise. Put in writing what you plan to do if the partners cannot agree on a significant issue. That could mean a buyout plan that is spelled out so that those in the minority have a parachute in place, although you would ideally make it somewhat disadvantageous to do so. You might choose to go to arbitration or mediation to resolve disputes.

The point is, it’s better to assume there will be disputes than try to avoid them altogether. You may currently have a strong friendship with your partner or partners, but will that survive into the next generation?

Sit down with your lawyer and go through the “what ifs.” What if one of the partners needs to become less active? What if one of the partners’ contributions turns out to be much more valuable than others? What if you can’t agree on strategy? What if you want the partnership to end?

If you are involved in a partnership dispute, call a lawyer. Leigh Law Group can help.