What Are the Causes of Partnership Disputes?
Every partnership is different. Each partner has a different personality, interests, and goals. Those differences can eventually lead to disagreements and get blown into a dispute that becomes destructive to the business. Reasons partnership disputes occur vary from one case to another. However, common causes of disputes among partners include:
- Disagreements over the rights and obligations of the partners. Many partnership disputes occur when partners cannot agree on the decision-making authority. These disputes may occur when a partnership agreement does not specify each partner’s level of authority in the business.
- Disputes over profit distribution. Since most partnerships exist for the purpose of generating profits, disagreements over finances are some of the most common causes of partnership disputes. Financial disputes may occur when partners disagree on how to distribute profits.
- Disagreements over company management or business objectives. As time goes by, partners may no longer agree on how to run the company. Partners may disagree with each other on the direction that the business should head in.
- Breaches of fiduciary duty. Once a partnership is formed, partners owe each other fiduciary duties. In other words, partners must act in the best interests of the business. When one or several partners fail to act in the best interests of the company, other partners may accuse them of a breach of fiduciary duty.
How to Resolve a Partnership Dispute?
When partners are facing disagreements, there may be several options for resolving the dispute. Contrary to popular belief, not all disputes are resolved through litigation. In some cases, it is most likely best to stay out of court to minimize the costs and address the dispute in an efficient and prompt manner.
There are several options for resolving partnership disputes:
- Develop and sign a partnership agreement. Technically, this may not be possible if partners are already facing a dispute. It is best to create a partnership agreement before disputes arise. The agreement should specify each partner’s rights and responsibilities and lay out the process for addressing conflicts.
- Negotiate a compromise. When partners do not have a partnership agreement or the agreement does not specify the manner in which the dispute should be resolved, partners still have the option of negotiating a compromise out of court.
- Agree to mediation. When negotiation does not bring a resolution to the dispute, parties may agree to mediate the disagreement. Mediation is an informal way for partners to resolve a dispute. Mediation involves a neutral, third-party mediator whose job is to help the parties decide the dispute.
- Dissolve the partnership. In rare cases, the only way to end a dispute may be to dissolve the partnership. However, the dissolution should be the last resort, as there may be alternative resolution options.
- File a lawsuit. Litigation is not always necessary to resolve a dispute. However, in some cases, partners may not be able to reach a resolution without litigation.
Before you decide how to proceed with your partnership dispute, consider speaking with an experienced attorney to review your specific situation and help you understand your options for resolving the dispute to reduce costs and ensure that there is little to no disruption of normal business operations.
Causes of Shareholder Disputes
& Options for Resolution
Shareholder disputes differ greatly from one case to another. In most cases, such disputes involve disagreements among shareholders themselves. Some of the most common causes of shareholder disputes include:
- Infringing upon the rights of a shareholder
- Violation of the shareholder agreement
- Breach of fiduciary duties
- Disagreements over the management or direction of the company
- Conflict of interest
- Disagreements over the distribution of dividends
- Concerns over fraudulent or illegal activities
- Disagreements between minority and majority shareholders
When shareholder disputes occur, the first thing parties involved in the disagreement should do is check if there is a shareholder agreement in place. Such agreements help keep the corporation running smoothly, regulate the relationship between shareholders, and provide guidance for resolving disputes.
Typically, the process of resolving a shareholder dispute involves the following steps:
- Checking the company’s shareholder agreement, if any, and other governing documents
- Scheduling a meeting of shareholders to address the dispute and reach a compromise
- Negotiating a resolution of the dispute
- Agreeing to mediation or arbitration
- Filing a lawsuit to have the judge decide the matter
A knowledgeable attorney who has experience handling partnership and shareholder disputes will analyze your specific situation and help you determine the correct approach for resolving the dispute.