A partnership dispute can be a real mess that threatens the viability of the business itself. Partners must understand the scope of their liability, their fiduciary duties and how they can productively resolve their dispute.
The difference between general partners and limited partners
A partner’s liability depends in part on whether they are a general partner or a limited partner. General partners play an active role in the management of the partnership. They are personally liable for the acts and debts of the business and other partners.
Limited partners are investors who invest in the business in exchange for a share in the profits made. Limited partners are only personally liable for the acts and debts of the business and other partners to the extent of their monetary contribution to the business.
A general partner’s fiduciary duties
General partners have fiduciary duties that they owe to other partners in the enterprise. These duties include:
- A duty of care
- A duty of loyalty
- A duty of obedience, and
- A duty of good faith and fair dealing
A violation of these duties can lead to a partnership dispute. Too much conflict can weaken the viability of the business. Decisions may be put on hold while partners bicker and the work of the business may suffer when partners cannot jointly make decisions that move the business forward. And, unlike employees, partners cannot simply be fired.
Mediation as a form of dispute resolution
Many partners who are in disagreement choose to mediate their dispute. Litigation can be costly and partnership disputes can become emotional. A mediator can help partners see past these emotions. Mediators cannot issue rulings like a judge can. This means it is up to the partners to craft the final solution to their dispute.
If partners can successfully mediate their disputes, their business is better for it, and they can continue as partners. If a solution cannot be reached, the partners know they tried their best and can walk away from the business with their heads held high.