Just as people generally don’t get married with the expectation of getting a divorce, parties seldom enter into partnership agreements with the expectation of ending up in court. Regardless, however, disputes commonly arise in legal partnerships. A solid partnership agreement typically includes alternative dispute resolution and dissolution terms designed to guide partners through an unresolvable argument. While most of the daily challenges of managing a business partnership can be addressed through effective communication and voluntary dispute resolution, there are several reasons why it’s wise to hire an attorney in the event of a partnership dispute.
Legal Disputes Common in Partnership Arrangements
When they undertake a joint venture, partners take on a fiduciary duty to act in the best interests of the partnership. They may not use company funds for inappropriate reasons or take property that belongs to the partnership. If a partner does perform some action that harms the joint business, he or she may be liable for breaching a fiduciary duty. This is a serious claim, and while partnership disagreements are most often resolved using alternative dispute resolution, a breach of fiduciary duty claim could easily draw out into time-consuming and costly litigation.
Partnerships are made of people, and just like any other human relationships disputes will naturally arise in business partnerships. However, unlike a disagreement with a neighbor over tree branches that have grown over a shared fence, disputes within a partnership can have a major impact on your financial and personal well-being. Good legal advice can help guide partners through the challenging process of managing a dispute. Licensed attorneys can advise partners of their respective rights and obligations when any of these common issues arise. And given how acrimonious partnership disputes can be – particularly when they end in dissolution – a good attorney can be your best resource when issues arise.
Attorneys Provide Guidance Through Challenging Circumstances
Granted, the initial comparison between a business partnership and a divorce that kicked off this article was a bit tongue-in-cheek. However, there are meaningful parallels to be drawn. Building a business partnership requires the investment of trust, financial resources, and sweat equity. When partnerships breakdown, it’s understandable to feel overwhelmed by the potential personal and financial loss.
Often, partnerships and other legal business arrangements dissolve due to financial issues. In these cases, partners may be burdened by jointly-held debts that they must figure out how to discharge, but often there’s little left to argue over. Partnerships that break up when business is going well, on the other hand, typically must deal with complex legal and financial matters. Managing disputes that arise in a partnership when there is substantial equity on the line can be challenging, and the steady hand of a practiced professional can be invaluable in such trying times.
Good Legal Advice Can Prevent Costly Mistakes
A good attorney can be your closest ally, and well-planned legal advice can prevent partners from making costly mistakes during a dispute. The rights and obligations that apply under a partnership agreement vary substantially based on the facts and circumstances at issue. For example, partners’ rights are affected by the type of business, if any, they form to carry out their partnership. Often, partnerships are governed by standardized laws, such as the Revised Uniform Partnership Act, that offer clear solutions to disputes common in legal partnerships. However, more often than not, partnership disputes are complex and fact-specific, and it’s easy to make a costly misstep.
Consider an example: two parties form a legal partnership where one provides sales and marketing expertise and the other provides human capital and labor. One partner decides to form a company on her own, and she reaches out to each of the partnership’s clients in an attempt to convince them to patronize her new company instead. Has she made a mistake that will expose her to legal liability?
As any licensed attorney would know, the answer to this question depends upon the particular laws of the jurisdiction. However, most courts require partners to fully withdraw from a partnership before starting a competing business. As a result, the entrepreneurial partner in the example described above may have easily avoided potential liability by notifying her partner of her intention to go out on her own. While this may not be a pleasant conversation to have, it may be necessary to avoid a costly and possibly hostile dispute in the future.
The law imposes specific rights and obligations on parties in legal partnerships. When partners find themselves in a dispute, understanding these rights and responsibilities is critical to avoiding costly mistakes. A good attorney can also help guide parties involved in a partnership dispute through what may be incredibly difficult circumstances. While naturally the best way to deal with partnership disputes is to avoid them altogether through effective planning, management, and communication, an attorney can be a vital ally when troubles arise in legal partnerships.