One of the best ways to avoid a business dispute between yourself and another primary stakeholder is to set up a partnership agreement in advance. This effort can often head off a dispute because many issues of concern have already been addressed. A partnership agreement also clearly defines everything that has been agreed to in writing, so there’s less chance of a dispute based solely on miscommunication.
What should a partnership agreement include? It can address many different issues, depending on the unique situation of the business owners.
Dividing losses and profits
Business owners often get into disputes over money. How are earnings going to be divided between the two of you? What happens if the business has losses, and who is responsible for them? A partnership agreement can set up earning percentages of yearly revenue, establish salaries, and divide responsibility for debts and other such matters. Clearly defining these terms can prevent financial disputes from escalating into litigation.
Business ownership percentages
Another thing to consider is the percentage of the business that you own. Many business partners will just assume that they’re entering into 50-50 split, meaning they have to work together to make decisions. But it is good to have this officially defined so that one person doesn’t think they get to make all of the decisions, leading to potentially serious disputes.
Tactics for leaving the business
There may come a point when one business partner wants to leave and the other does not. This can often lead to a dispute, perhaps because one person wants to buy the other out and that person thinks it isn’t financially feasible. A partnership agreement can set up a process for transferring ownership rights or exiting the business entirely. Having a clear exit strategy can prevent disputes from turning into costly litigation.
Resolving disputes that do arise
Finally, a partnership agreement can define steps parties will take to resolve any disputes that occur. Perhaps the partners agree to work with a third-party mediator. Perhaps they set up a system where disputes can be recorded and effectively communicated. Including a dispute resolution clause can provide a roadmap for handling conflicts without resorting to litigation.
Naturally, though, partnership disputes are still common, even with this type of agreement in place. Consulting with a litigation attorney can help you understand your rights and options for protecting your interests.