Going into business with a partner is an exciting endeavor, but there is always a chance that something can go wrong. Take proactive steps now to avoid disputes later. The Houston business law attorneys at Hendershot Cowart P.C. share these five tips to prevent and resolve disputes between business partners.
1. Have a Written Agreement in Place
A written agreement outlines the specific terms and conditions of the partnership. A partnership agreement should at least clearly address these eight questions:
- What percentage of the business will each partner own?
- What are the management duties of each partner?
- How will profits and losses be allocated, and when can profits be withdrawn?
- What are the voting rules for decision making?
- Who has the authority to enter into binding agreements?
- How will you resolve disputes?
- What happens upon bankruptcy, divorce, the departure of a partner, or a death?
- How will the partnership admit new partners?
“My goal with any partnership agreement is to draft provisions that account for every possible scenario, so my clients don’t end up in litigation down the road.”
-Katie Nash, Attorney, Hendershot Cowart P.C.
The more detailed the agreement, the less likely it is that a dispute will occur later. Clearly defined roles and processes ensure that each partner is on the same page and knows what to expect in the event of changes or disputes within the company.
2. Hire an Experienced Attorney to Prepare the Partnership Agreement
When drafting and preparing a partnership agreement, it is in both parties’ best interests to seek counsel from a Texas business lawyer. You may think you can save time and money by foregoing an attorney. However, the cost of having an unsuitable agreement that results in irreconcilable differences is far greater than if you were to retain an attorney in the initial development of your business.
“Inevitably, it’s more cost-effective to connect with an attorney early and understand the legal issues at hand,” says attorney and contract law expert Katie Nash. “My goal with any partnership agreement is to draft provisions that account for every possible scenario, so my clients don’t end up in litigation down the road.”
An attorney can also advise you on what type of partnership to form, taking into consideration issues such as taxes, liability, applicable regulations, and partner roles. Generally, there are four types of Texas partnerships: General Partnership, Limited Partnership, Limited Liability Partnership and Limited Liability Limited Partnership. By hiring an attorney, you can rest easy knowing your partnership agreement and business structure align with your and your partner’s goals.
3. Engage in Direct Negotiation to Resolve Conflict
When disputes do arise, try talking to your partner informally and in a private setting. Ideally, set aside a time after hours and outside of the workplace to remove the distractions and stressors of the workday. This will set the stage for a more productive discussion.
We acknowledge that partner relationships—which are often between close friends or family members—are inherently personal. Regardless, do your best to remain open-minded to your partner’s point of view, and do not take accusations or allegations personally. Correspondingly, avoid assigning blame. Instead, consider realistic compromises to reach the most favorable outcome for everyone involved. Your actions and decisions could impact not only you and your partner, but also your employees, customers, other partners and even family members.
4. Consider Hiring a Mediator
When partners cannot come to an agreement, or if the dispute spirals out of control, a mediator is the next, most cost-effective step. Through mediation, both parties have the opportunity to resolve issues through a neutral third party in a non-confrontational manner that will almost always result in a more productive outcome than litigation or dissolution of the partnership.
A mediator will help keep emotions out of the discussion and keep the focus on what is important – the business. A mediator will also use his or her experience to suggest proven strategies and solutions to resolve disputes.
5. Consult an Attorney During Disputes
If your partner becomes uncooperative or belligerent, seek out an attorney immediately. Taking matters into your own hands or waiting too long to hire legal counsel can be detrimental to your case. With a skilled Texas business law attorney, you will always know your rights and obligations, and the best course of action to take.
At Hendershot Cowart P.C., we will always provide you with sound guidance that protects not only you, but your business as well. If you need assistance with creating a partnership agreement, or resolving a partnership dispute, our team is here for you.
Call Hendershot Cowart P.C. today at (713) 909-7323 to speak to our skilled business attorneys.