Partnership disputes can be among the spookiest things to happen to your business. If you survey all the things which can cause harm to your business – tax problems, employee complaints, malpractice suits, etc. – you realize that this is a very powerful statement. Partner disputes literally have the potential to bring your business to a point of financial ruin and collapse. When partners engage in serious disputes, this can literally spell the end of your business. If you take steps to protect yourself, you can minimize the potential damage of partner disputes and help ensure a smooth-functioning organization. As we will discuss, the way to do this is to craft a solid partnership agreement.
In this post, we will summarize the potential ramifications of partner disputes and emphasize the importance of crafting a solid partnership agreement.
Partner Disputes Can Be Costly
Partners can engage in disputes about a wide range of things. When you run a business, you run into a seemingly endless number of issues, problems, concerns and sources of friction. Many partner engage in disputes regarding how the business operates. This is true even when business operations are outlined and discussed in a partnership agreement. Not infrequently, partners simply have clashing interpretations on how to handle a particular matter. If a partnership agreement is too vague, then this increases the possibility of conflicting interpretations.
Partners also frequently dispute over ownership percentages or compensation. Believe it or not, some companies don’t include ownership details in their partnership agreement or other documentation. This can create a severe problem at any point in the life of the company. Suppose the company has a good year financially and sends out profits to partners. If partners have a dispute regarding ownership, this can become very messy very rapidly, because this ownership dispute is essentially a dispute over money. To some people, this type of scenario may seem improbable, but the truth is that it happens quite frequently.
The Importance of a Solid Partnership Agreement
What this boils down to is that a solid partnership agreement is imperative for every company – unless, of course, we’re dealing with a sole proprietorship or single-member LLC. This is something we’ve emphasized before on our blog, and we will almost certainly emphasize it again in the future. When you create your company, you will want to develop a partnership agreement which is as well-crafted as possible, and a well-crafted partnership agreement is ultimately one which prevents disputes as much as possible. To craft an agreement in this way, you will want to make your agreement as detailed as possible. This is particularly true in areas which naturally tend to be more difficult to interpret, such as sections involving company operations. The more detail you add, the less likely that partners will have conflicting interpretations.
No matter what happens, you always to be sure that your partners have a crystal clear understanding of ownership percentages. Conflicts regarding ownership tend to be the most bitter, and therefore are the most likely to collapse the company. Spell out the ownership structure very clearly in your partnership agreement. As a rule, this should be the first thing you do when you write your agreement.
Contact the Trembly Law Firm for Additional Information
If you’d like to learn more about disputes, partnership agreements, or other related issues, give the Trembly Law Firm a call today at (305) 431-5678.
Trembly Law Firm
9700 South Dixie Hwy Penthouse 1100
Miami, Florida 33156