HOW CAN PARTNERSHIP DISPUTES BE AVOIDED?
The best way to prevent a partnership dispute from happening in the first place is through a written agreement. Typically, this is done at the beginning of the business venture. However, it is never too late to enter into a written, binding agreement with your business partner(s)! These rules apply whether you are a general partnership, limited liability company (LLC), or corporation in Virginia.
This written agreement should include details regarding the following:
- The authority of each partner and the extent of this authority;
- The role of each partner in the business;
- The obligations of each partner in the business;
- The rights of each partner in the business;
- Compensation and distributions;
- Capital contributions of each partner;
- Procedures to be followed when conflict arises
- Procedures to be followed when decisions must be made
- The circumstances and the timeline for the termination of the partnership
It doesn’t matter if you are going into business with a family member or longtime friend, a written agreement is so beneficial and important. Often, business partners can have different ideas in their heads about these issues. Putting the rules of the relationship on paper helps to govern the relationship so that they are no missed intentions. Some of the most difficult business litigation is driven by handshake agreements between old friends.
Having a written business plan will also protect your family. Do you really want your family to be involved in a nasty dispute with your business partner when they should be primarily focused on mourning your loss? Obviously, this is never fun or easy to contemplate, but planning can protect your family members at a time when they are most vulnerable. Once again, it is never too late to enter into a formal agreement with your business partner(s). In addition, we would suggest reviewing your agreement(s) from time-to-time to make sure it fits your current life and business needs/situation.
While this written agreement will certainly mitigate, if not prevent, many conflicts, it is not a foolproof solution. If a disagreement gets out of hand and cannot be resolved through communication between partners or reference to the written agreement, then consult an attorney who can help you understand the rights and obligations of both you and your partner. Additionally, there may be options to avoid full-blown litigation in case of a dispute.
Give me a call. I would like to see how I may help.