A business partnership allows partners to pool financial resources, increasing their shared overall capital, bridging the gap in expertise and knowledge, offering tax benefits and leading to more business opportunities. However, this arrangement can also increase the risks of conflicts that can drain financial resources and lead to reputational damage.
Although it can be difficult not to have disagreements altogether, business partners can avoid disputes under many circumstances, “simply” by behaving proactively.
Drafting a partnership agreement
Many conflicts between business partners occur because of a lack of a written partnership agreement.
It’s not uncommon for entrepreneurs passionate about a particular venture, who trust each other or are loved ones, to go into business together through a handshake. They skip drafting a contract that states ownership percentages, the responsibilities of each, how they will make business decisions or how one can exit the partnership. They simply start a business.
Then, down the line, one partner starts to feel like they are doing most of the work while receiving equal financial distribution, and the other feels like crucial decisions are made without their consent, resulting in conflicts.
In some cases, partners may have an agreement, but it’s not clear. It does not clearly assign responsibilities, specify how each partner should be paid, state how much should be reivested, give an outline for decision-making or provide an exit strategy. A vague contract can lead to misinterpretations and eventually disputes.
Drafting a legally binding, clear partnership agreement can significantly prevent disputes.
Communicating effectively
Having regular meetings that encourage open communication can help to better ensure that business partners stay on the same page. Differing expectations and minor misunderstandings can easily be resolved through effective communication. It also helps to address issues as early as possible to prevent them from escalating to major conflicts.
Disputes in a business partnership can often be prevented. Obtain more information by seeking personalized legal guidance, to better understand how you and your partner can protect and grow the business.