Arthur R. Lehman, L.L.C.

What causes most business partnership disputes?

When you are going into business, you may decide that pooling resources and talent with someone else or multiple other people is the best route. This may also feel less risky as you are not jumping into the venture by yourself.

In the excitement of starting the business venture, you may not consider what could happen if an internal dispute arises. Thinking about what could go wrong may be one of the best time investments you make in starting your own business and before you form that partnership.

Some questions to consider before forming partnerships

Before you form a partnership you should think about your reasons for wanting to partner-up with others and ask some important questions:

  • How much control do you want in the ongoing business decisions?
  • What is the other party or parties bringing to the partnership in terms of assets and expertise?
  • What do you hope to gain from the partnership, including things like tax advantages?

Common disputes with business partnerships

Partnerships need to have some underlying rules laid out in the partnership agreement for them to have a better chance of working well. Being specific in your partnership contract can also prevent many business issues from arising and give your partnership a better chance to succeed and thrive.

Money problems

One of the common problems in partnerships (or in any business) is with money. Lack of cash flow can create problems paying bills and is often noted as the reason most businesses fail. One partner drawing on profits that the business needs to continue successfully can create trust issues among the other partners. This drawing on funds can also put your business in financial jeopardy.

Personalities clashing

Work personality is also referred to as management style. When people have widely different management styles, this can lead to clashes and problems getting things done. One person's management style may be more old school, chain of command while another partner's management style may be more hands off. Yet another partner may want to be heavily involved in every detail of the decision-making, which could frustrate someone else who wants the responsibility of taking charge of their area.

Lack of financial equality

One partner may have the financial resources to fund the business at start-up, while another partner is brought is because of technical know-how and skill, which may be invaluable to the partnership. However, the partner who invested more heavily or even completely in the financial needs of the business may want full control over the major decision-making. This could create hard feelings about how each partner is valued and who has a say in what goes on going forward.

Unfair work distribution

Are you putting numerous extra hours into the business every week while your partner goes golfing or stops working after forty hours when there is more work to be done? This kind of work effort disparity can create hard feelings and make people want out of a partnership.

Setting up expectations at the start of a partnership can prevent these types of problems when going forward. If problems do arise and serious disputes occur, discussing the problem with a business litigation attorney can help resolve the dispute. Parties may resolve business disputes amicably and move on with the partnership. Or they may decide to go their separate ways and that dissolving the partnership is the best route to take.

What do you think the keys to an effective business partnership are?

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