How to Prevent Partnership Disputes
Partnership disputes aren’t something individuals who own companies think will happen to them, but when they do, things can get messy. One minute you are thriving and growing a strong company together as a team, and the next, you are on opposing sides of the courtroom, knee-deep in costly litigation proceedings.
Disputes can arise for any number of reasons, but quite often they involve a perceived mishandling of money or misaligned management philosophies regarding branding, strategy and culture. The key to avoiding explosive disagreements down the road is to plan for your potential breakup at the beginning.
Plan to break up? Yes, exactly. The best way to avoid a partnership dispute is to begin by preventing one from the outset.
Clarify Roles, Responsibilities and Requirements
As you begin to form a company in partnership with one or more individuals, seek out legal counsel to help all of you create a binding operation agreement. This document provides a written explanation of your roles, compensations and protections, both now and as the business grows. Begin by setting clear workload expectations, establishing compensation and even setting limitations in regard to event or entertainment spending. Establishing these roles and expectations in a binding agreement on the front end will create an easier, more productive and amiable relationship. Everyone will enter into the venture with eyes wide open - no confusion, no assumptions and a lot of clarity.
Think About Your Values
This is the softer side of developing a business partnership, but equally important. Draft a values agreement together that outlines your ethical commitment to one another and to the company. Begin on unified ground by agreeing upon the kind of culture and leadership environment you want to develop – this becomes especially important as your company grows. This isn’t to say that everyone must think the same way. Just make sure that your ideas on growth, culture, work ethic and leadership can hang out in the same room together. Then draft a document that says so and sign it.
Think About the Worst Case
It’s not a good feeling to think about the worst thing that could happen to your business, but just in case it does, it’s much better to be prepared than to be caught unawares. Sit down with your partner and legal counsel and work out a few doomsday scenarios. What happens if one of us takes a six-month vacation without prior approval? What if I suspect a mishandling of funds? Have these awkward conversations ahead of time and nail down your emergency plan(s). Hopefully you never have to use them.
Save Money, Time, Sanity and Friendship
Oftentimes, people don’t think about working with legal counsel until they are in a dispute. But at that point, it’s going to cost you a lot more money to come to an agreeable solution – not to mention the massive amount of time involved in litigation. The cost and stress involved in settling a legal dispute disappears when you front load these conversations.
Co-founders of a company are usually friends first. They think that since they get along so well on a personal level, executive-level management is going to be a breeze. This is not always the case. Many of the disputes we deal with as legal counsel in Seattle are between business partners who were close friends first, but not anymore. Friendship and personal, emotional investment make things tricky, and a good reason to plan ahead for potential upheaval in the future.
Think Ahead for a Successful Partnership
In the heat of the moment, when things are going great and it’s nothing but rainbows and pots of gold, it’s hard to pump the brakes and think about the worst things that could happen to your company. That’s why many companies don’t, but once you’re an established entity, backtracking to hash out these beginning conversations is difficult. That’s why partnership disputes happen in the first place – because people didn’t take the time to handle their affairs on the front end.
When is it a good time to seek legal counsel? As soon as you and your partner decide to go from idea to reality, call Holmquist + Gardiner. We’ll work with you from the beginning, asking tough questions and helping you and your partner build a company that will last beyond your first difference of opinion.
