Five Common Causes of Partnership Disputes

No matter how successful your business is, it is inevitable that partnership disputes will arise from time to time. Left unresolved, they can lead to missed opportunities, lost profits, low morale, and, in the worst case, the eventual dissolution of the business.  Below is a list of five common causes of partnership disputes, all of which can be avoided with a well-crafted partnership agreement.

Financial Rights and Obligations

Disputes about the the financial rights and obligations of business owners is one of the most common causes of partnership disagreements.  It frequently arises when a business is experiencing financial difficulties. If there is no clear direction in the partnership agreement as to how liabilities are handled and profits shared, serious management level problems are likely to result.

Breach of Fiduciary Duty

When a partnership is formed, each partner has a duty to act in the best interest of the company. A partner may not divert company opportunities for himself (or herself), or misappropriate company funds, or take any other action that intentionally hurts the business or the other partner(s).

Poorly Delineated Authority

If there is no clearly established role for each partner, things will either not get done or boundaries will be constantly breached, and no one can be properly held accountable for anything. Resulting disputes can prevent the team from focusing on the company’s success.

Misappropriation of Business Assets

Using company assets for personal expenses and activities is another major source of partnership discord. If a partner uses company funds to pay for a personal expense, or uses the company car to take a private road trip, it can create a serious problem for the company.

Utilization of Partnership Resources

Disagreements over allocation of partnership resources can bring operations to a halt. Perhaps one partner wants to exhibit at a trade show in Chicago while the other thinks New York is a better option. Or one partner wants to move to a more spacious set of offices while the other would prefer to deal with cramped conditions and save money.  If there is no mechanism in place to resolve management differences, small disputes can devolve into large headaches for the company.

If you are involved in a dispute with a business partner, or have a question about how to avoid one, contact Ken Cohen to arrange for an initial consultation. The Cohen Law Office has helped business partners resolve their disputes, and we welcome the opportunity to help you too.