Common Causes of Partnership Disputes

partnership disputes

One of the more popular entrepreneurial business structures is the partnership. Partnerships can be beneficial by allowing for shared decision-making, flexible tax options, and someone to share the workload with. Though there are many benefits, partnerships can also be a source of conflict. Often, partnership conflicts are caused by disagreements about the running of the business or the division of profits. Continue reading as we investigate some of the reasons that partnership disputes occur and how to avoid them.

Goals and Expectations

Disputes arise when partners are not in agreement about the direction their joint business should take. For instance, one partner might be focused on achieving a higher quality, higher profit product, while another may want to expand distribution by growing the company’s reach. Such differences can lead to disagreements about how assets and resources should be allocated and how the business’s growth should be managed.

Regular and open communication is crucial to a successful partnership. Outlining clear goals for the business in its early stages and regularly reevaluating them as the company grows and changes is the best way to ensure both partners agree with the direction that the company is taking. While communication must happen, it is also critical that each partner always enters into discussions about the business with an attitude of compromise.

Unequal Workloads Lead to Frustration

Another common cause of partnership disputes is when one partner is shouldering more of the workload than the other. This can provoke resentment and frustration, which can be damaging to the partnership. It is crucial to avoid conflicts if the business is successful.

To ensure this type of conflict is prevented, both partners must establish and understand their precise roles and responsibilities within the business. This allows both partners to contribute equally.

Check in regularly with each other to ensure both of you are appropriately fulfilling your responsibilities. Making adjustments when necessary, so that no one has a disproportionate workload, will strengthen your partnership. You will be safeguarding your collaboration by ensuring you are equal contributors, which will help prevent resentment.

Financial Disagreements Between Partners

One of the most significant sources of conflicts between partners is disagreements over money. Several factors seem to cause strife when it comes to money matters, including:

  • Profit division can cause issues if partners disagree.
  • Questions about how much should be reinvested into the business are best answered beforehand, as they can cause disagreements.
  • Decisions about how much the partners’ salaries should be can also cause disputes.
  • Make sure decisions that affect the taxes within the business are made with each other in mind.

Financial disputes put stress and strain on the partnership, leading to conflicts that can damage the business. To prevent conflicts, it is critical that partners outline their financial goals and create a financial plan that accounts for how the profits will be divided and how they will be reinvested. Again, communication is key to solid financial planning, and compromise can solidify your partnership and help you to avoid disputes.

Transparency About Financial Expectations

Partnerships operate best when they are transparent about their personal financial needs and desires. This way, they can understand each other’s motivations and may be more willing to adjust their expectations and plans. By having clear goals, partnerships can thrive, establishing a more sustainable working relationship.

Breakdowns of Communication

We have mentioned the importance of freely communicating a couple of times already. It cannot be stressed enough the most common cause of partnership disputes is communication breakdowns.

Partnerships flounder when the partners fail to communicate effectively, leading to squandered opportunities, misunderstanding, and heated disagreements. Remote workers and those whose communication styles differ can struggle with this challenge.

Here are a few tried and true ways to prevent conflicts that cause communication breakdowns:

  • Establish clear lines of communication
  • Schedule regular periodic check-ins
  • Everyone should be kept abreast of any decisions made within the business
  • Rely on shared documents and calendars, so no one is kept out of the loop
  • Outline precise communication protocols
  • Be ready to pivot if the method of communication is not working for both partners

Maintaining healthy communication can build a stronger, more collaborative partnership, which will, in turn, develop into a more successful business. Successful partners are open to feedback and constructive criticism. They compromise when necessary and actively work to engage in open and honest dialogue.

Business Strategy Conflicts

Disagreements can lead to conflicts about how assets are allocated within the company. As partners, it is common to disagree about the best strategy for the business occasionally. For example, one partner might be interested in the online portion of the business, while the other is interested in growing the brick-and-mortar division of the company.

Preventing conflicts is less complicated if you establish a clear business strategy early on, revise it regularly to ensure everyone’s goals are being met, and communicate openly about why you believe in the strategy you are committed to. Always actively listen and be ready to compromise.

By working together, you can have a cohesive, effective partnership that allows a successful business to develop.

Top Ten Key Takeaways for Maintaining a Successful Partnership

A business partnership can be beautiful and create success for both parties if a few guidelines are adhered to. Listed below are some keys to success:

  1. Make sure you communicate honestly, openly, and regularly.
  2. Develop goals and reevaluate them as you meet them.
  3. Periodically check in to make sure you both are happy with the direction of the company.
  4. Practice extreme honesty and financial transparency.
  5. Make sure the workload is fairly distributed.
  6. Share documents and calendars, so no one is in the dark about business operations.
  7. Agree on communication protocols and then adhere to them.
  8. Respect each other’s point of view.
  9. Be ready to compromise when necessary.
  10. Adjust your expectations so that you both are working toward the same goals.

Creating Successful Partnerships

Building your business through partnership can be valuable to both partners. Playing on each other’s talents and strengths can lead to a successful business relationship. If you have questions about your business partnership and how to best strengthen it or if you need guidance on how to handle a partnership dispute, a business litigation attorney at Lovell, Lovell, Isern & Farabough, LLP can guide you in the right direction. Contact us for more information.

Contact Us Today

Tell Us About Your Case and
Schedule An Appointment

Talk to a member of our legal team today. We are Board Certified in Oil, Gas and Mineral Law; Civil Trial Law; and Personal Injury Trial Law by the Texas Board of Legal Specialization. We have won awards including Texas Super Lawyers Rising Stars in Energy & Natural Resources and Texas Super Lawyers in General Litigation and Personal Injury. Many of us are rated AV Preeminent by Martindale-Hubbell – the highest possible rating for ethics and skill in our industry. All communication is kept confidential and private.