Conflict between partners can have a negative impact on business operations. Ultimately, the success of the business may be jeopardised.
Although it is preferable to resolve a conflict amicably, it is sometimes difficult to reach an agreement. In such cases, the services of a lawyer specialising in business law are the best solution.
Here we outline the most common causes of disputes and the various options for avoiding conflict. We will also discuss the various reasons why it is sometimes better to hire a lawyer.
What are the most common disputes between business partners?
Conflicts between business partners can arise for many reasons. The most common causes are
- Breach of fiduciary duty: embezzlement, appropriation of private property belonging to the business and similar actions. If a partner acts inappropriately and harms the business, this is a serious dispute that can sometimes lead to litigation.
- Disputes over the management of resources: disputes over the use of financial resources, such as the purchase of new equipment, are rife. Sometimes the partnership agreement specifies who has authority over this decision or what process should be used to make the decision. However, if authority is not clearly delegated and the partners have to decide together, it can be difficult to resolve a conflict between partners.
- Lack of demarcation of powers: if there is no clear separation of responsibilities between the partners, conflicts are likely to arise. When signing the various contracts, all partners must ensure that they understand their rights and obligations.
- Inability to share the workload equitably: in some partnerships, only some partners work and others simply provide the funds. In other situations, the partners share the work and all participate in the running of the business. If one of the partners feels that the workload is not being shared fairly, conflict can arise.
These are just some of the many causes of conflict that can arise between partners. Let’s look at how these conflicts can be avoided.
How can disputes between partners be avoided?
As a general rule, when a dispute between partners arises within a partnership, you should contact an experienced business lawyer as soon as possible. Your lawyer will be able to help you determine whether you have created any documents that could help resolve the dispute. A lawyer can also help you identify the various methods of dispute resolution, such as mediation or arbitration.
However, before you reach these extremes, there are ways of avoiding conflict. If you and your partner take the necessary steps in advance, you will be able to protect your business relationship:
- Establish prior written agreements: you can contractualise specifications such as roles of authority, duties, obligations, capital contributions and circumstances. This will help you avoid many conflicts.
- Communicate in the event of disagreement: communication is essential in the event of a dispute. When a conflict arises between partners, you may be able to resolve it through communication. Legal proceedings should not be the first step.
- Mediation as an alternative to litigation: mediation consists of a discussion with a neutral third party. It enables an agreement to be reached without having to go to court.
Calling on a business lawyer: the simplest solution
When is it necessary to call on the services of a business or commercial lawyer?
A lawyer can help you with all legal issues relating to your partnership. Here are some of the most common situations in which you should consult a business lawyer.
Starting a business
The term“partnership lawyer” gives the impression that this is someone you only need if you have a disagreement. In reality, a partnership lawyer can do a lot for you before you even start your business:
- Give good legal advice from the outset to avoid future disputes;
- Work out the details, such as filing the necessary documents with the government, choosing a business name, drafting the articles of association and registering your intellectual property;
- Draw up a detailed business partnership agreement that explicitly describes how you will run your business.
Breach of contract
A common reason why you may have to sue a business partner is to enforce the terms of a contract. Common agreements between partners include the following:
- Partnership agreements ;
- Operating agreements;
- Non-competition agreements;
- Employment agreements;
- Non-disclosure agreements.
If your partner breaches one of these agreements, you may have to take legal action either to force them to respect the agreement or to obtain damages.
Misuse of partnership assets
Some partners fail to keep their own assets and funds separate from the business. For example, they may use the business credit card to pay their personal bills.
If your partner abuses the company’s assets and cash, you will need to take action. A solicitor who specialises in disputes between partners will advise you of your options and help you find a solution.
Breach of fiduciary duty
Partners owe each other fiduciary duties of loyalty and diligence. They must act in the best interests of the partnership. If your partner breaches a fiduciary duty, you may have to seek redress in court. Here are some examples of breaches of fiduciary duty:
- Failing to disclose a conflict of interest;
- Withholding information about the business from other partners;
- Seizing business opportunities for oneself;
- Failing to exercise sufficient care in the management of the business;
- Exposing the company’s trade secrets;
- Violating the company’s copyrights or trademarks.
Disagreement between partners
Many disputes between partners can be resolved by relying on the provisions of your partnership agreement. However, if you don’t have a partnership agreement, it can be much more difficult to resolve your disputes.
In the event of a dispute, a lawyer can help you negotiate an agreement with your partners. He or she can also help you take any other legal action that may be necessary.
Dissolution of the company or partnership
Sometimes the continuation of a partnership is simply not possible. In some cases, this may be the result of disputes or serious misconduct on the part of a partner. Sometimes it is because the objective of the partnership has been achieved. In other situations, it is simply a change in the role of the partners.
In all cases, a specialist lawyer will be able to help you protect your best interests.
Goldwin Law Firm offers you its expertise in many areas of law. Do not hesitate to contact us to find out how we can help you.
