No matter how successful a business is, it’s practically inevitable that partnership disputes will arise. Left unresolved, they can lead to lost profits, missed opportunities, destroyed morale, and even the eventual dissolution of the business. Below is a list of eight common causes of partnership disputes, many of which can be avoided if a solid partnership agreement is in place.
Financial Rights and Obligations
This is one of the most common causes of partnership disagreements, and usually comes to the fore when the business is experiencing money problems. When there is no clear direction on how liabilities are handled and profits shared, problems result.
Breach of Fiduciary Duty
When a partnership is formed, each party has a duty to act in the best interests of the business. This means that they should not divert company opportunities for themselves, misappropriate company funds, or take other actions that hurt the business and set the stage for future litigation.
Poorly Delineated Authority
When there is no established and recognized role for each partner, things will either not get done or boundaries will be constantly breached, and no one can be properly held accountable for anything. The resulting dispute can prevent the team from focusing on the company’s success.
Uneven Workload Distribution
Many partnerships will divide work responsibilities, with each partner having an active role in the company’s operation. Conflict can arise if one partner believes that the workload is unfairly distributed.
Misappropriation of Business Assets
Using company assets for personal expenses and activities is another major source of partnership discord. If one partner ‘borrows’ $5,000 from the business to cover his upcoming mortgage payments or uses the company car to take a road trip, it can -and usually does- create discord with the other partners.
Utilization of Partnership Resources
Disagreements over allocation of partnership resources can bring operations to a halt. Perhaps one partner wants to exhibit at a trade show in Chicago while the other thinks New York is a better option. Or one partner wants to move to a more spacious set of offices while the other would prefer to deal with cramped conditions and save money. Left unresolved, small disputes can evolve into big deals.
Disagreements on Business Objectives
It sometimes happens that business partners fail to agree on a single course of direction for the company. If they cannot come to an agreement on their own, the company could literally be split in two.
Disclosure of Confidential Information
Trade secrets and customer information are often confidential in order to protect a business’s competitive edge. As a result, business partnership agreements often stipulate that any information gained or disclosed during the partnership must be kept confidential. When such information is disclosed without authorization, whether intentionally or unintentionally, it can compromise the business, resulting in a dispute between partners.
Is Your Partnership in the Danger Zone?
If you are involved in a dispute with a business partner, contact Trembly Law Firm to arrange for an initial consultation. Perhaps you need a firmer partnership agreement, or the matter can only be resolved through litigation. We have helped numerous partnerships either resolve their disputes or amicably dissolve, and welcome the opportunity to help you too.
It’s important to remember that partnership disputes are only one thing that can threaten your company. Business owners should monitor any threats, whether obvious or hidden, as an ill-advised lawsuit can undermine all your hard work. To help you identify exposure areas, Trembly Law is pleased to offer a Danger Zones Quiz that emails results within 24 hours. If you are facing a partnership dispute or other critical matter and want to speak to a Miami business lawyer, reach out to our offices today.