Most business owners will eventually find themselves in a business partnership with one or more parties. Just as in every aspect of life, disputes happen in business partnerships too, and you must understand how to mitigate the risk of ending up in a dispute with a business partner and how to handle it when you do.
Business partnerships can be essential to setting up and growing your business. However, unforeseen conflicts can arise due to various circumstances, and understanding how to navigate some common disputes is crucial to avoid business disruptions, losses, and business partnerships that implode.
Ideally, you prepare guidelines on dealing with any disputes you anticipate beforehand. However, hiring an experienced business attorney may increase your chances of salvaging your partnership and business if you end up in a partnership dispute. This article will discuss some of the most common disputes in business partnerships, how to avoid them, and how to deal with them if they happen.
Everyday Purposes for Creating Business Partnerships
There are various reasons why a company or individual may form a business partnership, including the following:
- Starting a new business or combining two existing businesses to meet a particular goal
- Developing or marketing products that incorporate both businesses
- Identifying market trends and conducting joint research
- Improving profit margins
The Most Common Disputes in Business Partnerships
The most common business partnership disputes arise from a breach of contract and may include the following:
- Goods that are delivered late or delivering the wrong goods
- Failure to pay for goods or deliver goods after payment
- Failure to supply business property upon the transfer or sale of a business
- Violation of a non-compete clause or similar agreement
Other issues can result in business partnership disputes as well.
#1. When a Business Partnership Is Abandoned
Most people enter a business partnership with good intentions; however, sometimes, the dream is better than the reality. Not all business partnerships will last or go the way they were planned. If one partner abandons the agreement before a proper dissolution can be made, it can result in legal action.
Suppose your partner inadvertently or intentionally harmed the business or benefited from abandoning the partnership agreement, depending upon the details of your business partnership or operating agreement. In that case, you may be able to file a lawsuit on the grounds of abandonment.
#2. When Your Business Partner Is Negligent
Negligence is an umbrella term used when someone fails to take proper care when doing something, and it can vary in severity. To hold your business partner accountable or sue for negligence, you must have evidence that they acted inappropriately without care and that their careless and irresponsible actions negatively impacted the business.
All parties of the business partnership are obligated and expected to make decisions based on the company’s best interest. So if you can prove they were negligent, you may have a strong claim.
#3. Breach of Fiduciary Duty
Whether you are part of an LLC or a business partnership, both parties must agree to have the business’s best interests in mind and act accordingly. Should someone place their own needs above the partnership, they may be in breach of their fiduciary duty to their business partners.
When you have a business partnership, any member that acts against the partnership’s best interest may be held liable. The most common breaches of fiduciary duty include the following:
- Excessive waste of the company’s resources, whether it be material, financial, or intellectual
- Irresponsible and inappropriate actions that result in business loss
- Stealing company supplies or products for an individual gain
- Misappropriation of funds
#4. Breach of Operating or Shareholder Agreements or Bylaws
When a business partnership or LLC is formed, a contract that governs the business arrangement and outlines enforceable terms for business operations is created and signed. If an operating or partnership agreement’s terms are breached and results in a loss to the business, you may have a valid claim. You should hire an experienced business attorney to work with you through the pre-litigation and litigation phases.
#5. Failure to Delineate Authority
Another mistake is assuming that all parties involved understand their roles and responsibilities in the business partnership, and failing to clearly define who is responsible for different roles in the business partnership. Creating a weak foundational agreement that doesn’t specify roles and responsibilities often leads to inefficiency and confusion within the business.
How to Mitigate the Risk and Resolve Business Partnership Disputes
Certain business partnership disputes are unavoidable. However, there are some things you can do ahead of time to help protect yourself and your business from encountering certain types of partnership disputes.
Hiring an attorney experienced in corporate and business transactions can help protect you and ensure you take the following steps:
- When you draft a business partnership agreement, ensure that you specify rules of authority, obligations, duties, financial contributions, and how to terminate the contract. It is critical to write the agreement before entering the business partnership, no matter your relationship with the other party.
- Ensure you avoid creating poorly drafted Operating or Shareholder Agreements or Bylaws.
- Anytime a disagreement happens, keep communication open to help resolve the issue. Litigation is not always the best answer, and your can attempt to resolve conflicts through discussions and mediation.
- Before proceeding to litigation, consider mediation as an alternative. Mediation is an excellent method for helping to resolve business partnership disputes to avoid costly and sometimes unnecessary lawsuits.
Fuchs & Roselli, Ltd Offers Personalized Solutions for Your Business and Personal Needs
It’s essential that your business partnership agreement outline how to navigate legal conflicts, including utilizing mediation, before filing a lawsuit. When you and your business partner can’t work through the disagreement by discussing the situation, hire an experienced business attorney to help you determine the responsibilities and rights of all parties involved before going to court.
At Fuchs & Roselli, we have a dedicated team and always put our clients first to help them achieve their goals. Our experienced team of attorneys is here to help you, offer trusted legal guidance, and create personalized solutions for individuals and businesses.
Our areas of expertise include Litigation and Pre-Litigation Counseling, Estate and Wealth Management, Real Estate, Corporate, and Business Transactions, and Banking and Finance at our office in Chicago, Illinois.
Contact us today, and we will create a personalized solution for you.
