Many California entrepreneurs nowadays share their dream of starting a business with their friends or even their family members. A business partnership is often a strategic way to approach a business. It allows business owners to pool their money, combine resources and run a business more effectively.
One of the primary benefits of a partnership is gaining different perspectives that help create new business ventures and reduce risks. However, when those perspectives vary too much, it is common for business partners to run into disputes.
Partnership disputes can stem from several issues, including:
- Disagreements about each partner’s level of involvement;
- The disclosure of confidential information; and
- Conflicts regarding compensation.
Not every business partnership will face these challenges, but it is always essential to have a partnership agreement in place to handle these possible disputes.
How effective is the partnership agreement?
When business partners start a company together, there are several legal forms and applications they must complete. However, the partnership agreement between partners is one of the most important. It is often the key to resolving disputes. An effective partnership agreement should cover several details, including:
- How much control each partner has over the business;
- Each partner’s specific role and responsibilities;
- How the partners will distribute compensation;
- The process of decision-making for the company; and most importantly
- The strategy for resolving any disputes.
A partnership agreement must address all of these details. That way, partners can refer to the agreement in any disagreement.
Dispute-resolution strategies should be specific
When creating the partnership agreement, it can be challenging to think of the worst-case scenario of a dispute. However, it is essential. This can involve a step-by-step plan, including:
- How a partner should inform the other of their disagreement;
- How the partners will approach discussing the conflict;
- Establishing a third party to be present in the discussion; and
- Whether the partners wish to pursue mediation or arbitration.
Creating a clear-cut plan that details how business partners will resolve a dispute gives them the necessary guidelines to follow in the event of a dispute.
It is critical to put personal feelings aside
The reason that partnership disputes are often so difficult is that partners are often friends or family. And those relationships often involve incredibly personal feelings.
These relationships are important in life, but they often only make business disputes worse, and, in turn, affect the entire business. Therefore, it might be helpful to address that personal relationship in the partnership agreement. Business owners must set aside their emotions to protect the business’ future.