The first step to resolve a partnership dispute is to prevent it from happening in the first place. Many partnerships and small businesses are Limited Liability Corporations or LLCs. The LLC should have effective corporate documents, including a comprehensive operating agreement that clearly establish important issues, including:
• The role of each partner
• The distribution of income and profits
• Capital contributions
• The valuation of a business interest in the event of a divorce, incapacitation, bankruptcy or death of one of the principles
• How new investment will be brought into the company
• How the company will be sold or ended
The operating agreement and corporate documents should provide a sound process for handling potential disputes and challenges throughout the life of the company, and how these issues will be resolved. The comprehensive detail and effective legal strategies contained in these documents help to prevent disputes before they arise, and guide the parties through times of unexpected developments and challenge. Strategies and agreements can be crafted while the parties are enthusiastically working together and while cooperation and calm reason is pervasive. Leaving these issues unaddressed results in emotional and complex disputes that must resolve not only the dispute itself, but the process with which the dispute will be valued and ultimately decided.
The Personal Component of a Partnership Dispute
In most partnership disputes there is an inherent personal aspect to the relationship of the parties that influences the course and scope of the dispute. In many cases business partners are close friends or even family members who are working together to build a business. The relationships between their spouses, other family members and even employees and friends become a component of the dispute that must be acknowledged and effectively managed.
There are almost always several options to resolve a partnership dispute, and managing personalities and the “atmosphere” surrounding the dispute will have a substantial impact on the quality and efficiency of the ultimate settlement.
Negotiation is one of the fastest and least expensive alternatives to resolve a partnership dispute. Your attorney should foster a constructive and productive working atmosphere around the dispute, while aggressively protecting and pursuing your personal interests.
Mediation and arbitration should be considered as alternatives to a full lawsuit. These Alternative Dispute Resolution or ADR strategies can help to keep costs in check while providing sound and proven mechanisms to focus and resolve the issues at the core of the dispute.
When all else fails, or when other parties become belligerent or uncooperative pursuing a lawsuit in Court may be the only practical alternative. The effective resolution of a partnership dispute should balance many factors for you, the client, including time, personal relationships, business realities, money and the objectives you’ve established from the outset.A