Partnership disputes can arise in many business circumstances. Sometimes, a once-harmonious business partnership falls apart out of nowhere, and other times, you can see a conflict taking shape.
In all situations, legal guidance can help you overcome the dispute, keep your company on track and prevent unwanted consequences.
Common causes of partnership disputes
Often, underlying issues, each capable of straining the business relationship, can lead to a partnership dispute. Here are some examples:
- Breach of partnership agreement. Disagreements often stem from one partner failing to adhere to the terms outlined in the partnership agreement. These breaches may involve issues related to profit sharing, management responsibilities or operational procedures.
- Breach of fiduciary duty. Partners owe each other fiduciary duties of loyalty and care. Breaches occur when a partner acts in their own interest at the expense of the partnership, such as misappropriating funds or engaging in self-dealing.
- Financial mismanagement. Disputes can arise over the misuse or misallocation of partnership funds. Examples include unauthorized expenditures or failure to account for profits.
- Decision-making authority. Conflicts often occur when partners disagree on major business decisions. Clashes over strategic direction, investment opportunities or operational changes can spark a partnership dispute.
Fraud or misrepresentation (falsifying records, misrepresenting the partnership’s financial health, etc.) is another cause of disputes.
Dispute resolution mechanisms
Resolving a partnership dispute can be challenging, as feelings of hurt and betrayal may complicate matters. Potential solutions include negotiation, mediation or arbitration. These methods can help partners reach a mutually agreeable solution without resorting to litigation.
However, litigation may be necessary if you fail to resolve the dispute amicably. A legal representative can strengthen your case.