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How partnership agreements prevent disputes

Jul 27, 2021 | Business Litigation

Forming a partnership can be an exciting opportunity to start or expand your business. And while partners typically enter the arrangement with nothing but the best intentions and shared visions of the future, things can and do change over time.

Business partners can wind up locked in a dispute, potentially jeopardizing the fate of their enterprise. And whether you have an effective partnership agreement in place can dictate how this situation plays out.

What is in your agreement?

A partnership agreement establishes rules and procedures for running the business and resolving disputes. Even the best-fitting partnerships do not see eye-to-eye on everything, which is when a contract can be particularly valuable.

More specifically, a solid partnership agreement can include clauses such as:

  • Who will make decisions
  • Which party will manage finances
  • How to divide responsibilities
  • How to resolve disagreements and conflicts
  • What to do when the business closes, or a partner wishes to leave

These clauses can seem insignificant or unnecessary, especially when partners have an existing and close relationship. However, having a contract spell out the rules and protocols for handling business-related matters can ensure partnerships know their roles and avoid crossing lines that create conflict.

When a dispute does arise

A partnership agreement can prevent many conflicts. However, disputes can still arise. When it does, partners can look to their agreement for guidance on how to resolve it.

Depending on the details of an individual contract, it could direct parties on:

  • Who will ultimately make a tie-breaking decision
  • The method of dispute resolution, whether it is mediation, arbitration or litigation
  • Rules for terminating the partnership amicably

Without this guidance in a contractual agreement, conflicts between business partners can become contentious and take far longer to resolve than is necessary.

Building a partnership on a solid foundation

A partnership agreement can provide the critical framework to build a stable partnership and business, as long as it is valid and comprehensive. 

Thus, upon deciding to partner with someone in your business, do not put off formalizing the arrangement with a legal agreement. Making it a priority can ensure you protect yourself, your partner and your business from the very beginning.