A Full-Service Civil Law Firm With Over 30 Years Of Experience

Five ways to reduce your risk of a partnership dispute

On Behalf of | Jun 27, 2024 | Business Law News

Choosing the right structure for your business is more important than many people realize. If you don’t put thought into it, then you could end up creating an entity that subjects you to more taxation, causes you to lose control of business operations and important decision-making functions, and leads to less income than you anticipated.

To protect your interests and your vision for your business, then, it’s imperative to fully consider your business structure options. Once you’ve done that, then you can focus on mitigating the risks associated with that structure type.

That’s especially important when you create a partnership. While a partnership allows you to bring diverse talent into the management of your company and retain more control over your business, it can also lead to conflict amongst partners. And if you’re not careful, these partnership disputes can infect your business operations, even to the point that your business is forced to shut down.

There’s no failsafe way to fully prevent a partnership dispute. However, there are several steps you can take on the front end of your business formation that can significantly reduce the risk. This includes:

  1. Discussing vision, values and goals: You and your partners need to be on the same page when it comes to the business’s future and what how you want to drive the business forward. You can ensure vision alignment by having detailed conversations with partners early on, even before the business is created. So, be open and honest with your partners about what you hope to get out of the business so that you don’t end up working with others who have vastly differing points of view on the business’s direction.
  2. Reducing everything to writing: This sounds obvious, but important details are often missed, which can lead to infighting amongst partners. You need to be thorough when crafting your partnership agreement so that there’s nothing left open to interpretation.
  3. Talking about worst case scenarios: Things can and will go wrong in your business. That’s just the nature of game. But you don’t want to be surprised by how your partners respond in a time of crisis. So, be sure to talk about worst case scenarios so that there’s consensus amongst the partners as to how those issues will be handled.
  4. Creating a decision matrix: Deciding how to proceed forward with the business can be tough when there’s staunch disagreement over important decisions. You can avoid this, though, by developing a decision matrix early on. This tool gives you an unbiased and fair way to resolve disagreements and come to a decision when the partners can’t develop a consensus. As a result, partners can walk away from a heated dispute feeling like a fair process was utilized to come to a decision.
  5. Communicating and having a way to air grievances: You don’t want to let partnership issues fester to the point that they become unmanageable and impossible to resolve. By thoroughly talking about issues as they come up instead of trying to buy them, you can find resolution at a much earlier stage, thereby decreasing the risk of a dispute evolving into something that you can’t get a handle on. You may even want to consider mediation and other forms of alternative dispute resolution if you need assistance getting past the issue at hand.

Be thorough in creating your partnership to avoid nasty disputes

Creating a successful business requires a lot of diligence and foresight. This is especially true when structuring your business and aligning your vision with the individual with whom you work. To protect your and your business’s interests as much as possible, then, be sure to put in the work necessary on the front end of your business’s creation.