Most Common Causes of Legal Disputes between Business Partners

Building a business with someone requires a certain degree of trust and respect between partners. However, that doesn’t mean that the partnership won’t have its fair share of disputes. For some partners, those disputes may be something that they can settle on their own for the good of the business. However, in some cases, disputes between business partners can escalate to legal proceedings and even the ending of their business partnership. What’s most likely to cause these kinds of disputes? Keep reading to find out.

Disagreements over Finances

As with marriages, business partnerships are most likely to be soured by fiscal issues. Managing the finances of a business can be stressful enough when you’re doing it on your own; add in the opinions and actions of another partner, and things can turn messy quite quickly. Even if a company is doing well and turning a profit, fiscal issues can arise for a variety of reasons. One partner may start mixing personal funds with business funds, or using business funds for personal expenses, for example. When a company is not performing well, finances can become even trickier, as tensions will naturally run higher when you’re struggling to turn a profit (as is common in new companies).

The best way to avoid these kinds of financial disputes is to make ownership rules clear from the start. Have a written partnership agreement that clearly states each partner’s profit distribution and liability. Make sure to include prohibitions against comingling business and personal funds, and any necessary details about profit distributions, money disbursements, and expenditures.

Of course, even with these preventative measures in place, it is still possible for financial disputes to arise in a partnership. If those disputes cannot be settled with mediation and a review of your written agreement, legal proceedings may be required.

Disputes over Intellectual Property

Not all of your business’s assets are physical. Some of your greatest assets, in fact, may be intellectual property that belongs to the business, or that your company is simply using. Disputes over where the ownership of that intellectual property actually lies can cause issues in many business partnerships. For example, let’s say that you own your company’s intellectual property, but you never legally documented your ownership or permission for your company to use it. If a dispute arises, the court may rule in favor of the company, stating that the intellectual property actually belongs to the business, and you would lose ownership of it.

If you’re primarily responsible for the creation of any intellectual property your business uses, it’s a good idea to document your ownership and rights from the beginning. You can still grant the business permission to use that property, but if a dispute arises, you will retain ownership of your concepts.

Questions Regarding Authority

When founding a company, it’s important to clearly establish the chain of command for your new business. Will all partners be equal in all regards? Will certain partners have more control over certain areas of the business? Does one person hold the authority to make final decisions regarding finances? While the concept of being equal in all regards may sound ideal, it doesn’t often work out in practice. This is why most businesses have partners responsible for certain areas, such as overseeing company operations, handling marketing and expansion, or monitoring company finances.

You should establish a clear separation of duties from the beginning of your partnership, though recognize that those duties may change as your company grows. As this happens, you should adapt your documentation to reflect your company’s changing needs.

Disagreements on Business Goals and Objectives

Each partner in your business likely has a vision of where your company is going and what its future will look like. However, it’s important that you discuss your goals and objectives in clear terms and establish an agreement on what you hope to achieve with your business. Do all partners want to expand, or would you prefer to stay small? Do you envision your company providing franchise opportunities in the future? Will you expand your services/products as your company grows? Having a cohesive vision for the future doesn’t just help avoid conflict; it can help your business to grow and thrive, because all partners are working harmoniously towards the same outcome.

Settling Business Disputes with Partners

If you’re in a business partnership, and you’re experiencing a dispute that you can’t settle together, it may be time to take legal action to ensure your rights are protected. Contact The Harr Law Firm today to schedule a consultation with our experienced business attorney.