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When business is booming, relations between you and your business partner might be great. However, how do you deal with a dispute or breakdown when times are tough? Sometimes, the relationship between business partners might become so tenuous that breaking up is the only option. This article outlines multiple steps to resolve disputes between business partners, to avoid taking legal action.

Understand the Original Agreement

If you have a formal legal agreement with the other party, such as a partnership agreement or shareholders agreement, review it carefully if a dispute arises. In particular, check any dispute resolution procedures and terms or clauses that deal with the issue at hand. Relying on the agreement and your original intentions on an issue may help to reach a resolution.

If you do not have a formal written agreement, there may be other evidence of the informal agreement between your partnership or business relationship when it began. This evidence may include:

  • emails;
  • notes; or
  • any other form of correspondence, like text messages.

Look through these correspondences to find any information on how you both intended to handle any disputes.

An Example

Kim is angry with her business partner. Mary, for how she engaged an expensive contractor without giving Kim any notice. Kim and Mary do not have a formal partnership agreement in place. However, Kim remembers that Mary sent her an email agreeing to Kim’s proposal that they must both agree to engage a contractor before confirming the engagement. 

Kim looks for this email and finds it in her inbox. This email also sets out that if either Kim or Mary do not follow the correct processes, the breaching party must foot the cost of the unapproved contractor’s invoices. 

Issues and Potential Outcomes

Identify the Issues in the Dispute

If things are not working, take the time to step back and identify the real issues at hand. This can be hard when emotion takes over. Consider whether the dispute relates to a misunderstanding about facts. Likewise, if you think this is the case, discuss the misunderstanding with your partner. 

Common trouble spots for business partners include:

  • unequal division of work;
  • different visions and priorities for the company;
  • incompatible management styles; and
  • unequal financial investment and profit-sharing.

Identify Potential Goals and Outcomes

Think about what you want out of the dispute and compare that with a realistic outcome. Also, consider your priorities and goals for the business. If your partner has different priorities and expectations on an area you are arguing about, you are unlikely to resolve the dispute. 

Communicate Your Concerns

Talk It Out

Once you have identified the key issues in the dispute, set up a meeting with your partner to discuss the problems. As best as you can, try to keep emotion out of the discussion and be prepared to listen and negotiate. Be prepared to talk beyond the dispute and review the goals and priorities of the business as a whole. Also, check that you are on the same page about the bigger picture for the business before fixing the key issues in dispute. Importantly, keep a written record of the items discussed and any additional issues raised or outcomes proposed.

Put It in Writing

If you cannot resolve the dispute through a meeting, consider putting your position in writing. A formal letter to your business partner will let you thoughtfully set out the issues and your suggestions for a potential resolution. Also, set out a deadline for a response and the following steps if you cannot reach an agreement. Any correspondence will be of assistance at a later stage if you need to take the dispute further.  

Seek Outside Assistance

Engage an External Advisor or Mediator

Just like a marriage counsellor can save floundering marriages, a neutral third party can help warring business partners resolve their disputes. This may be a trusted advisor who had helped at an earlier stage of the business. Additionally, there are resources for business owners to get outside advice on their relationship and business operation. 

Likewise, mediators are trained to deal with a range of dispute situations. Further, the Australian Small Business and Family Enterprise Ombudsman has a number of resources to help business owners manage disputes.  

Seek Legal Advice

If you cannot resolve the dispute on your own or with an external mediator, consider getting legal advice. A lawyer can explain your rights and obligations in the dispute and help avoid you having to take the matter to court.

Dissolve the Partnership 

Suppose you have undertaken all the steps outlined above and still cannot resolve the particular dispute. If both parties feel the partnership or business relationship should be dissolved, you will need to reach an agreement on how that will work.

For example, will one of you buy the other partner out? Or, will both partners sell to a third party? If so, on what terms?

Litigation

If you believe taking legal action against your business partner is your only option, carefully consider the broader implications of such an action. Do you have a defined goal that you hope to achieve from going to court? This might be compensation or a particular order. 

Importantly, do not go in with the hope of ‘winning’ against your partner. The expense and time of litigation can be overwhelming and may also have a broader damaging effect on the business.

Plan Ahead for Next Time

If you do not have a formal partnership agreement or other agreement with your business partner, consider getting one for the next time you run a business with a different business partner. A partnership agreement should include:

  • a dispute resolution procedure to follow when you are not in agreement;
  • the roles and responsibilities of each partner;
  • the process of handling money; and
  • a clear guideline to follow if you wish to dissolve the partnership.

Key Takeaways

If you are having a dispute with your business partner, it is crucial to keep a handle on your emotions and identify the key issues. The ten previous steps provide a guideline on how best to handle any partnership disagreements. Remember that litigation is never the first solution. It should always be the last resort when you have exhausted all other methods.

Further, make sure you have a partnership agreement in place if you ever plan to enter into a partnership or a formal agreement that documents your business relationship. Finally, whenever you find yourself in a dispute, understand where your differences are and focus on coming to a middle ground. 

If you have any questions about resolving an issue with a business partner, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.  

Frequently Asked Questions

What is a partnership agreement?

A partnership agreement is a contract between you and the other partners in your business and will outline each partner’s duties and responsibilities. These include duties to each other and duties to the business itself.

I am in dispute with my business partner. Should I dissolve my partnership?

If both parties feel that dissolving the partnership is the only solution to resolve a partnership dispute, you will need to reach an agreement on how that will work. There are several steps involved in dissolving a partnership. 
 
Before you take this action, ensure you have exhausted other options. For example, have you reviewed your partnership agreement or shareholders agreement for the correct dispute resolution process? Have you communicated your concerns with your partner? Additionally, have you sought advice from an external advisor, mediator or lawyer?

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