Partnership Dispute Lawyer

The most common reason for partnership conflict is money. Partnership disputes can disrupt your company, and employees. Contact our lawyer for a free legal consultation for business owners in the following counties: Los Angeles, San Diego, Orange County, and San Francisco.

Brad Nakase, Attorney

Email | Call (800) 484-4610

How do you settle partnership disputes?

If you and your business partner cannot agree on an important issue, remember the primary goal: the good of the company. Otherwise, the business dispute risk harming the business and its culture. Before hiring a business dispute lawyer, try these proven strategies that can help minimize and resolve business partnership disputes.

Negotiate. Talk to the partner or partners about the dispute. Identify the issues and determine if there is a middle ground.
No Character Attack. It is understandable that when partners argue, personal attacks are made. It is essential to focus on the issues when settling partnership disputes.
Find the partnership agreement. The partnership agreement should state what the partners’ duties and responsibilities are. When a partner breached that agreement, highlight the part of the agreement that has been breached; then inform the breaching partner in writing, i.e., email.
Mediate. Partnership disputes are often very heated, and conversations cannot be had. Therefore, hire a mediator to help settle the partnership dispute.

In this article, our business dispute lawyer will discuss what causes partnership disputes, how to avoid them, and what to do when a partnership dispute occurs as follows:

1. How do you settle partnership disputes?

2. What is the most common partnership dispute?

3. What Causes Partnership Disputes?

4. How to Avoid Partnership Disputes

5. Partnership Dispute Solutions

6. Alternatives to Partnership Dissolution

7. Search for a Partnership Dispute Lawyer Near Me

how to settle business partnership dispute

What is the most common partnership dispute?

Financial disputes are one of the top causes of partnership disagreements and the reason business owners hire our business dispute attorneys. While business partnerships are often created to mutually benefit both partners, conflicts and disagreements commonly arise when dealing with fundamental issues such as money and managing the business. Partnerships have at least two people with equal decision making power. Partnership disputes will often occur when one person does not agree with the reasoning of the other partner or partners. A partnership dispute is often difficult to resolve and can negatively impact your business during the time you seek a resolution.

What Causes Partnership Disputes?

Differences of opinion on how funds should be allocated and the company’s daily management can turn into a partnership dispute. Our business dispute attorneys often see that the majority of partnership disputes we have seen fall into one of the following categories:

Business Disputes

The vision each partner has for the business will constantly be at odds with each other. Similarly, the risk tolerance of each partner will often be at odds. One partner may want to stay a boutique operation and focus on wowing their loyal customers; another partner may want to go big and is comfortable taking risks. You should ensure you have similar overall visions for the business from the outset of a partnership; otherwise, this issue will arise frequently.

Personal Disputes

Each partner is a human being, and even if you are a professional, it can be difficult to separate personal problems. This is typically the case when partnerships are formed between family members or friends. Personal problems might also occur if one partner feels another is slacking off or partners have a different managerial style. Personal disputes are often extremely messy and can be a much bigger deal than professional disputes.

Ethics Violations

One of the worst types of partnership dispute is an ethics violation. This is often caused by the bad conduct of one or more partners. Examples of this may be embezzlement, fraud, going public with sensitive information, and not consulting other partners when making important business decisions. Betrayals like these, unfortunately, do happen, but there are legal remedies to these kinds of actions, so you can hold your partner accountable for their behavior.

How to Avoid Partnership Disputes

The best way to avoid partnership disputes is to have a clear partnership agreement. This is a contract signed by all parties in the partnership when the business is formed. It lays out all of the duties, responsibilities, and powers of each of the parties. It may also detail the resources each party needs to bring to the table and how any profits will be split.

A partnership agreement is not necessary in the eyes of the government, but it is good practice and can help you avoid a lot of issues in the first place. We recommend having a clear and legally binding partnership agreement to ensure each partner pulls their own weight. It is possible to draft a partnership agreement yourself, but a lot of people rely on a business attorney to help them. This will ensure you cover everything, and if a partner does not pull their weight, you will have legal recourse.

A good partnership agreement should include:

The rights and responsibilities of each partner and how they intersect with those of the other partner(s).
How profits and losses will be split between partners.
Which circumstances will allow or require partners to make capital contributions.
How decision-making power and company control will be split.

The partnership agreement should also lay out what should happen during worst-case scenarios, such as:

What happens if a partner becomes disabled, retires, dies, or declares bankruptcy
How dissolution will be handled.
The manner in which one partner may leave their partnership and what happens when it occurs.
How new partners may be added and the decision-making and vetting process behind that.
How to remove a partner against their will
How partners can buy or sell shares in the partnership and what that means for decision-making or controlling powers.

The section that deals with worse case scenarios is called the buyout agreement. It will clearly lay out the processes for each scenario and the manner in which the situation must be handled. For example, when one partner buys or sells their share, the buyout agreement must detail the process and the amount of compensation. These circumstances are awkward to talk about, but it is beneficial to have a clear process laid out in advance to avoid confusion or conflict if it arises.

When creating the partnership agreement, you will also be able to see how your partner handles negotiation and disagreements. You want to see your partner discussing their thoughts calmly and listening to yours or other partners thoughts. They should be working towards mutual benefit and be willing to make compromises and cooperate with the process. If they are abrasive, bullying, or refusing to back down or listen to other partners’ opinions, this is a red flag. These types of people are extremely difficult to partner with. We recommend walking away from partnerships with people like this or people who you see warning signs of untrustworthy or unethical behavior. It is much better to lose a business opportunity than tied to someone you cannot trust during times of trouble.

That being said, you do need to advocate for yourself in partnership negotiations. You should not agree to terms that clearly disadvantage you and should calmly express the issues you have with the terms.

At Nakase Wade, our partnership dispute lawyer believes prevention is the best cure, and that is why we strongly recommend partnership agreements to all our clients.

Partnership Dispute Solutions

Sometimes no matter how much you put plans in place to reduce the likelihood of partnership disputes, they still occur. There are several options for resolving a partnership dispute:

Dissolution

This is definitely the most drastic solution to dissolve the partnership entirely, but when a partnership dispute cannot be resolved, this may be the only option.

Dissolution is not always a bad thing. Sometimes a partnership may have achieved all of their goals and decides to go their separate ways. Or a partnership may decide to change to a different business structure or merge with another company. Dissolution may also occur when one partner becomes incapacitated, retires, or dies.

Unamicable dissolutions may occur when a partnership sees no way of working well together. Against will termination of a partner is also called dissolution and is sometimes the only solution when ethical violations like fraud are involved.

If dissolution occurs because of a dispute, there are likely to be a number of disputes during the dissolution process. Think of it a little bit like a divorce, you will argue over assets, and the emotional stress of the disputes can cause people to say and do things that will damage the personal relationship.

A dissolution doesn’t need to be unpleasant, if handled correctly, it can be done amicably, and all partners can leave with their dignity intact. The key to a successful dissolution is a strong partnership agreement. This clearly lays out how everything is handled and split in the case of a dissolution and can help you to avoid mediation or courts to sort out the mess.

Common Dissolution Problems

- Debt payment. Before assets are divided, the partnership must pay any outstanding debts it has. Disputes may occur between the partnership and debtors.
- Division of assets. Each partner, should receive their capital contributions to the partnership back. After this has been done, then the remaining assets should be split in accordance with the ownership interest. Often partners will try to short-change the other, so ensure everything is accounted for and properly valued.
- Procedural matters. There are a lot of things to do to close shop. It can help to have someone with experience to guide you through the process and make sure you do not miss any steps or make mistakes.

Alternatives to Partnership Dissolution

You will be glad to know that there are other solutions to partnership disputes; you don’t need to go your separate ways over small disagreements. In fact, you should try alternative solutions before you even look at dissolution. Dissolution is a costly and time-consuming process.

Here are some of our alternative solutions:

Renegotiating the partnership agreement. If your dispute is not easily solved, then you might discuss renegotiating the responsibilities or powers in the partnership agreement. This is useful if there is something one partner is struggling with, or an issue constantly occurs. There will usually be some sort of tradeoff, but this is often an easier option and may be a good solution to your problems.
Buying a partner out. If the partnership is between two people, then this is a dissolution, but if there are three or more partners, then you may decide to buy a partner out or have them buy you out. This can be very expensive, so often, partners are reluctant to buy another out, especially if they do not have the personal funds to wear the cost. You will need to get a professional business valuation to ensure you are buying them out for their share. However, it can be a good solution if the problem lies with just one partner.

Search for a Partnership Dispute Lawyer Near Me

Most partnership disputes can be resolved through good faith and open communication from all partners. However, if there is no easy solution, you may need to seek assistance from an unbiased third party. A partnership dispute lawyer can help:

Create a strong partnership agreement to avoid disputes
Review or renegotiate the partnership agreement
Advise of options when one partner is acting unethically
The partnership dispute cannot be resolved through communication, and you need advice.

We are happy to discuss any partnership dispute, big or small and talk the issue out with you. A professional opinion can help put things into perspective and prevent a small dispute from snowballing into a bigger issue.

Nakase Wade is widely recognized as one of the foremost partnership dispute law firms and has helped many businesses resolve complex disputes. We would be happy to talk to you and lay out potential courses of action to solve the problem.

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