Business partnerships benefit many people, but this isn’t always the case. For a partnership to be successful, involved parties should be on the same page and make decisions that are in the best interest of the business. Absent these, disputes are likely to arise.
This guide discusses four causes of partnership disputes, which include:
1. A poorly drafted agreement
An agreement is crucial to the success of a partnership. When a contract is poorly drafted, partners may have misunderstandings. A partnership agreement should clearly state the percentages of ownership, roles and responsibilities, authority, decision-making processes, contributions to the partnership, allocation of profit and loss, length of the partnership and dissolution.
An agreement that lacks vital clauses or fails to provide in-depth details may contribute to a partnership dispute.
2. Negligence or abandonment
Partners may have equal or different ownership percentages. Even though this factor matters, they should respect each other. When a partner makes business decisions without the other, disrespects their scope of authority or neglects their suggestions, disputes may occur.
It can be unfair for a partner to feel like they are not contributing to the company or that operations are conducted without their input.
3. Misappropriation of funds
When a partner spends a significant amount of money without informing the other or misappropriates funds, a disagreement may arise. Partners who discuss expenditures and can document how they used funds can maintain their business relationship for much longer. Transparency in action is key on all sides.
4. Breach of fiduciary duty
Partners should owe each other a fiduciary duty – acting in the best interest of the other or the business. Actions contrary to this may be a breach of fiduciary duty and can lead to disputes.
If you and your business partner are in a dispute, you should learn more about your case to make the right moves.