Sustaining a business under a partnership agreement requires a lot of teamwork, including proper communication between the partners. However, partner disputes may emerge once in a while, causing strains in business operations. After facing partnership disputes, you want to explore the best methods to resolve them and continue working with your partner for business growth.
Moreover, you need to explore legal solutions that will prevent future company challenges that will likely cause more disputes. In doing so, you need to partner with a trusted business law attorney who understands the importance of handling partnership disputes with care and sufficient knowledge.
At Los Angeles Business & Real Estate Law, we dedicate our services to ensuring you and your business partners receive the best business resolution services. We aim to conduct enough research on your matter to uncover underlying issues and provide legal solutions. We are also open to suggesting reforms at your workplace to empower your team with workable business strategies. Thanks to our proposed solutions, you can look forward to having stable business growth to meet your goals.
The Nature of Partnership Business Agreements
When starting a business, you may find it easier to run operations with a partner on board. Your partner may be well-known to you, including your spouse, a close friend, or a former colleague. Alternatively, a new acquaintance with similar business goals could push you to work together.
Upon establishing the various roles that each partner will undertake, you will take over the business and begin operations. Your partnership agreement can take on various formats, and the law allows business partners to determine the best approach to dividing roles.
Thanks to the freedom of contract you enjoy, one partner may take on more roles than the other, leading to a power imbalance. If all partners understand the essence of this division, the business partnership will proceed without challenges.
Additional elements of a partnership business include collaboration in meeting various goals. For example, one partner may oversee the finance department while the other oversees the marketing and client acquisition department. A third partner may handle the legal department if the partnership consists of multiple partners.
Understanding how a partnership business agreement works ensures you and your partners meet all business expectations. You will also learn of your rights and duties as a partner, leading to smooth business management.
Fiduciary Duties that All Partners Should Uphold
All partners have fiduciary duties to fulfill toward keeping the company running. A fiduciary duty is a legal obligation that requires a company partner to perform their roles with the company’s best interests in mind. Additionally, fiduciary duties call for sound decision-making to further businesses’ corporate agendas.
Fiduciary duties are enforceable under the law in California under the Corporations Code, which introduces the requirement to uphold all company codes. Based on the California Corporations Code, all partners should observe the following:
Upholding the Duty of Care
A duty of care exists for all business partners, empowering them to handle operations cautiously. The law of torts imposes a duty of care on all persons who are subjects of the law, including partners, to ensure they remain accountable for their actions.
In the corporate context, a duty of care requires business partners to conduct due diligence checks, analyze financial information, and consult experts before making important decisions. Additionally, all partners should uphold open communication channels as a duty of care to ensure unanimous decisions.
The duty of care for partners to act accordingly also requires reporting any emerging issues in the company to enable fast solution-finding. The reports should be as detailed as possible to ensure that the parties that should help are well-versed.
Failure to uphold the duty of care can result in negligence suits filed by fellow partners or other concerned stakeholders. Upon filing the suit, the parties aim to establish that you breached the duty of care and that the company suffered losses.
Based on this, you may face civil law consequences requiring you to compensate the company for its losses. Often, the compensatory amount may be extremely high, leading to financial constraints. Therefore, observing your duty of care as a partner is important to avoid adverse outcomes.
Duty to Obey Business Operation Guidelines
Secondly, you must observe all business guidelines throughout your operations as a partner. The law emphasizes the need for obedience because many partners may strongly believe that their position in the company gives them an upper hand in undertaking operations. Consequently, they may make drastic decisions that could jeopardize the company’s future because of inadequate consultations and obedience to the rules.
The duty to obey involves observing all company protocols, regardless of position, and seeking approval from fellow partners where necessary. Additionally, the duty requires you to obey the general law and avoid any illegal operations that could draw negative attention to the company. Unlawful operations include fraud, misappropriation of funds, and engagement in corruption.
Company politics should not influence your daily operations as a partner, as they could lead to non-observance of the duty to obey. Due to ongoing company politics, a junior staff member may fail to observe protocol on your account as they try to secure a promotion or other benefits from you.
Duty to Uphold Loyalty
Upholding company loyalty is also an essential duty to observe, and all partners should undertake their operations under the guidelines of loyalty. Company loyalty can take on various forms, and traditional operations should reflect the need to uphold the best interests of your business.
For example, avoiding engagements with companies or brands in competition with your business is encouraged because it upholds company loyalty. Every partner should limit themselves to opportunities that will propel the business forward, not expose it to unfair competition.
Further, loyalty also requires a regular and accurate accounting of fund usage to consolidate all profits accordingly. These include spreadsheets on weekly or monthly expenditures, receipts for all transactions you authorized, and any credit you wish to report. You can work with your company’s financial department to produce your accounting report and promote accountability.
Duty to Undertake Fair Dealings
Closely related to the duty to remain loyal is the duty to undertake fair dealings that promote the company’s best interests. Under the company operations guidelines, all partners should aim to identify the best possible opportunities for their companies and share them with the other partners for a unanimous approval decision.
Before accepting any company deal, you should undertake all necessary research to determine that no loopholes exist to cause financial losses. Further, your company dealings should reflect the overall company image, especially if you have established yourself in a specific niche. Doing so ensures you uphold company goodwill, crucial to retaining and attracting new clients.
Common Causes of Partnership Disputes
Although fiduciary duties exist to guide partners throughout their business operations, disputes may still arise for various reasons. Some causes of disputes may emerge from factors related to daily business operations, while others may involve external factors that affect business performance.
By understanding the common causes of partnership disputes, you can better equip yourself to avoid them or seek solutions early for the benefit of your company. Some common causes of partner disputes include the following:
Reduced Access to Business Funds
Monetary constraints often affect the morale of businesses, resulting in multiple disagreements among business partners. The reasons for disagreements often stem from different views on how to spend the limited company funds. Since each partner may have a varying perspective, they may prioritize one project over another, to the dissatisfaction of other partners.
If the problem persists, you may be in a difficult position due to recurrent partner disputes, reducing the business growth rate. Additionally, the tension at the workplace can result in unfair decision-making that may affect you or other partners.
Reduced access to business funds may also raise suspicion among partners, especially where the deficit is unexplained. For example, one party may be suspicious of another, leading to unprecedented suspicion that results in a dispute.
Personal Life Issues
Personal life problems may also interfere with a partner’s workflow, causing them to disagree with fellow partners on serious issues. Personal life problems may include divorce, which could distract you from your work. In return, other partners may notice the decline in productivity and raise strong opinions, resulting in a dispute.
Additionally, personal issues can motivate engaging in unlawful business practices, like the misappropriation of funds. The circumstances are bound to arise when you face personal financial problems, pushing you to violate company policies and the overall legal provisions.
Partner disputes involving personal issues may also arise from unresolved matters between partners beyond their business relations. Since many partners have a close relationship outside of work, disagreements in different settings can cause tension at the workplace, resulting in a serious dispute.
The best approach to handling personal issues is to take some time off and address the concerns raised by the person of interest. In doing so, parties have a better chance of reconciling, making it easier to continue with business operations.
Decisions on Future Business Projects
Determining a company’s future can create disputes among partners, particularly where not all partners endorse the suggested plans. For example, one partner may consider investing in the company’s future important. On the other hand, you may find it wiser to use the available funds to improve the company’s inventory for more sales.
A partner dispute may arise after failed negotiations and resolution, creating setbacks for the disputing parties and other workers. Finding a solution to the dispute is important to ensure that the company’s best interests continue to guide all decisions.
Dissenting Business Opinions
Every partner has varying work perspectives, including different business approaches. For example, one marketing option may seem more workable for one partner, while another may introduce a different approach. Often, both perspectives are valid, but only one project can be introduced at a time.
Due to the limited opportunities for execution, partner disputes may arise and create challenges in running the business. Your business law attorney can invite both parties to assess their input and settle on a business opinion they can work with.
If settling is difficult, you may need to consult your attorney for different dispute resolution methods. The involvement of a third party can be pivotal to reducing conflict and promoting a better work environment.
Adverse Economic Conditions
External economic pressure is also a common cause of business partner disputes, especially because it calls for tough business decisions. For example, reduce employee numbers or reduce expenditures in the business by reducing provisions like free lunch at the workplace.
Since many decisions greatly impact daily company operations, they may create tension among company partners, resulting in disputes. Working with a business attorney allows you to explore different options to reduce the chances of your business stalling.
Possible Dispute Resolution Options to Consider
When a dispute escalates, resolving it between the disputants alone becomes difficult. Often, a third party needs to step in and intervene when both parties fail to agree on important issues. Additionally, the involvement of a third party introduces neutrality, which is often necessary to resolve a dispute between the parties fully.
You can explore several dispute resolution options, depending on how serious the matter is and whether your fellow partners agree. Some options for consideration include the following:
Negotiation Sessions
Negotiations are often the first dispute resolution option to consider when handling partner disputes because both parties have a chance to speak directly. Moreover, negotiations allow parties to present their interests instead of their positions. Taking this approach is essential because it enables you to see the other party’s point of view and consider several possible areas of compromise. The other disputing party will also do the same, giving you a better chance of compromising and settling.
Although negotiations are beneficial, parties may fail to resolve disputes, especially if they stick to their positions. If so, your attorney will recommend an alternative to pushing parties to work together.
Mediation Hearings
Mediations are an advanced form of negotiation where a neutral third party, a mediator, facilitates parties into settling. A mediator is obligated not to take sides throughout the sessions but to provide suggestions that may work towards resolving the dispute.
Since mediation sessions are party-driven, you, as the disputing partners, can also suggest conditions and circumstances that would further push you toward a settlement. Once all parties agree to the suggestions, the mediation closes, and a mediator records an official agreement document to finalize.
Arbitration Sittings
An arbitration is similar to mediation, but the arbitrator makes the final decision after hearing both parties. Based on this, arbitration leaves the parties’ interests to be determined at the arbitrator’s discretion. The form of dispute resolution is most suitable where both partners appear to have equal interests, making it difficult for either to settle. Your attorney can represent you during arbitration to present your interests to the arbitrator.
Litigation Proceedings
If alternative dispute resolution methods fail, you can resort to court intervention, where a judge will handle your dispute. Your lawyers play an important role in litigation because they help you prepare your pleadings and represent you in court. Having an experienced attorney is, therefore, highly beneficial.
Issues Surrounding Partnership Disputes
When resolving disputes, parties should identify the main issues causing disagreements. Doing so paves a clear path for the parties to settle. Some issues that may arise when resolving disputes through any of the discussed methods include:
- Claims of Misappropriation of Funds.
- Dissolving Partnership Agreements.
- Removing Some Partners from the Company.
- Unequal Control of a Partnership Agreement.
- Probate and Divorce.
Once both parties agree on the issues, the neutral third party will work on each matter until they help you completely resolve the dispute. Working with an experienced business law attorney throughout the process is highly advisable, as they will provide the most suitable approaches toward dispute resolution. Therefore, contacting your attorney in advance is a great approach to take.
Find a Business Law Attorney Near Me
When handling daily business operations, you will likely face partnership disputes. Based on the disputes, your productivity may reduce, creating additional challenges for your company. Moreover, you risk losing one or more partners, resulting in significant setbacks and jeopardizing your overall business growth. You can avoid serious outcomes by working closely with a business law attorney who understands the nature of partnership disputes. They should also be ready to provide workable solutions and propel your business toward recovery.
At Los Angeles Business & Real Estate, you will receive excellent legal services to help you explore dispute resolution options. Your legal attorney will help you choose the most suitable dispute resolution method, depending on the nature of your partnership dispute, for the most effective results. You can also inquire about legal guidelines to prevent future challenges in the company, including enforcing fiduciary duties by all partners. For more information on how to navigate partnership disputes, contact us today at 310-796-7794.
