Navigating a partnership in business can be complex, and unfortunately, conflicts can and do arise. When a business partner transitions from friend/collaborator to adversary, it can complicate the operations of the business, affect employee morale, and potentially harm the business’s financial future. Understanding the legal steps, you should take in such a situation is crucial to protecting your interests within the business and mitigate any possible damages. Here’s a guide to navigating those choppy waters:
- Review Your Partnership Agreement
The first step is to thoroughly review your current Partnership or Operating Agreement. This document should outline the procedures for resolving disputes, the process for exiting or ending the partnership, and any clauses related to the dissolution of the business relationship. Often, these agreements include a mediation or arbitration clause(s), which are designed to resolve conflicts without resorting to the likes of pricey litigation. Understanding these provisions is essential as they will guide your next steps and may offer a structured path to resolution.
- Seek Mediation or Arbitration
If your partnership/ operating agreement includes mediation or arbitration clauses, initiate these processes as soon as possible. Mediation involves a neutral third party who helps facilitate a resolution between you and your adversary. Arbitration, on the other hand, involves a neutral arbitrator who makes a binding decision based on the evidence and arguments presented. Both methods can be less costly and time-consuming compared to court proceedings, and they may help preserve a working relationship if that’s important to you. (Mediation and arbitration’s goal is resolution between the parties by an unbiased person, not by gauging the viability of the business in the long run.)
- Consult with a Business Lawyer
Engage a business lawyer who specializes in partnership disputes. An experienced attorney can provide you with a comprehensive understanding of your legal rights, the strengths and weaknesses of your case, and potential outcomes. They can also help in negotiating terms, drafting necessary legal documents, and representing you in arbitration or litigation if needed.
- Document Everything
Maintaining thorough and accurate records of all interactions with your adversarial partner is crucial. This includes emails, meeting notes, financial transactions, and any other relevant communications. Documentation can serve as evidence if legal action becomes necessary, proving critical in disputes over breaches of contract or fiduciary duties. Best practice is to limit all communications with the adversary to a minimum or through attorney contact until a resolution has been decided.
- Consider Business Valuation and Exit Strategies
If the conflict cannot be resolved amicably, you may need to consider business valuation and exit strategies. This involves determining the value of the business and negotiating the terms under which one partner buys out the other. Your business lawyer can assist in ensuring that the valuation is fair and that the exit terms are legally sound. This process can also help avoid prolonged disputes and provide a clear path forward. Your business lawyer can help aid you in the sale of your portion of the business or can help negotiate the terms of your purchase from the old partner. Either case, a business lawyer is crucial if mediation/arbitration did not resolve amicably.
- Evaluate Your Options for Litigation
If mediation and arbitration do not resolve the issue, litigation may become necessary. This is generally a last resort due to its potential costs and impact on the business. If you find yourself in this position, your lawyer will guide you through the process, from filing a lawsuit to presenting your case in court. Most disputes can be resolved before the case is subject to litigation.
- Review and Revise Your Partnership Agreement
After resolving the dispute, (without litigation) it’s wise to review and possibly revise your partnership/ operating agreement for the future. Address any weaknesses that may have contributed to the initial conflict and update the agreement to better handle future disagreements. This proactive approach can help safeguard against similar issues in the future and protect new partnerships going forward.
In summary, when a business partner becomes an adversary, taking a systematic approach can mitigate any possible damages and facilitates resolution. Review your partnership or operating agreement, seek mediation or arbitration, consult with a business lawyer, document all relevant interactions, and be prepared to consider business valuation and litigation if necessary. By following these steps, you can protect your business interests and assets. As well as navigate the complexities of partnership disputes with greater confidence in the future. Woodward, Kelley, Fulton & Kaplan have expert attorneys who can handle any level of partnership dispute from initial complaints due to personality conflicts to complete partnership ‘break-ups’ and business sales. Brandon Woodward is our top attorney to consult when things within your business partnership start to feel ‘out of tune’ or the business starts walking more to your partner’s beat than the mutually agreed tempo. Our office is open Monday through Friday and can be reached at any time by calling (772) 497-6544. We’d love to help you resolve any partnership issue that comes your way!