3 Partnership Disputes that can Jeopardize a Business
Many businesses are established through partnerships between motivated, committed individuals ready to create a successful company. Unfortunately, issues sometimes arise along the way that cause disagreements between the partners. If these disputes escalate, the conflicts can disrupt business operations, sometimes affecting both the short-term and long-term success of the company. Business partners should be aware of, and try to avoid, these common disputes, in order to maintain a successful partnership and strong business.
Conflicts of Interest
Business owners sometimes have conflicting responsibilities that can impact their partnership relationship or the business itself. For example, one partner may also own another business, or may have personal interests that interfere with or disrupt the business operations. If these conflicting interests affect the business in any way, whether financially, professionally or by harming its reputation, legal intervention may be required.
Breach of Fiduciary Duty
The actions of one business partner can have a significant effect on the others. For this reason, business partners have a legal responsibility, or fiduciary duty, to the partnership. This means that partners must always act in the best interest of the company. Some of the legal expectations for a partner include being honest and fair with all partners and acting in good faith of the partnership and business. Additionally, a partner is expected to use care when making business decisions and always place the interest of the business and partnership above personal interests.
If a partner acts inappropriately and causes harm to the partners or to the business as a whole, this type of dispute can be serious. A breach of fiduciary duty can cause the other partners to experience financial loss, legal liability or other harm. Because of this, partners often seek legal assistance in resolving the dispute.
Buy-Sell Agreements
In some situations, a business partnership doesn’t work out. When this happens, a buy-sell agreement dictates the terms of removing the partner who is leaving. This type of buyout agreement is a contract between the co-owners and governs the process when one partner wishes to leave the company, wants to retire, wants to sell their shares to someone else, goes bankrupt, gets divorced or dies.
A buy-sell agreement is an important document. But if the terms are unclear, it can lead to major disputes. The important elements of the agreement, including the terms under which it can be exercised, company valuation, payout terms and a dispute resolution process must all be properly negotiated ahead of time in order to avoid serious disputes during the buyout process. Conflicts of this nature can impact daily operations, affect public image and lead to financial strain on the company.
Litigation for Partnership Disputes
The best way to lessen the impact of a partnership dispute is to try to avoid the disputes in the first place. But when that is not possible, competent legal representation in court is essential. The legal team at Churchill, Quinn, Hamilton & Van Donselaar, Ltd can help you structure your partnership up front, along with preparing a partnership agreement that establishes clear business operation rules and partner responsibilities. With a proper foundation right from the start, your company will be more likely to avoid disputes down the line.
If a dispute does arise, we can assist you with identifying dispute resolution strategies, advocate for your interests and help to ensure you are well-prepared for litigation when necessary. To learn more or to schedule a consultation, contact our Grayslake office at 847-223-1500.