How to Handle Disputes with Your Business Partners

How to Handle Disputes with Your Business Partners

by Jane Haskins, Esq., January 2018

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Having business partners is a lot like a marriage. You start the relationship with high hopes, believing that you get along so well that nothing could possibly go wrong. And then things happen: You have trouble making ends meet, and the financial stress causes conflict. Or you're wildly successful and have trouble handling the growth. You discover you want different things, or someone isn't really a team player.

It's unrealistic to think that your relationship with your co-owners will sail along without conflict. And yet, many small business owners are unprepared when disputes do happen. Here are several ways to help prevent major conflicts, and also to handle them when they do arise.

Preventing Disputes

Staying with the marriage analogy, the more you've discussed your hopes and dreams for the future early on, the more likely you are to be able to see eye to eye on the daily decisions that support them.

Your Partners

One of the best ways to prevent major disagreements from derailing your company is to think carefully about the people you choose as business partners in the first place. You and your business partners should start out with the same values and vision for the company's future. They should be people you trust, and with whom you can work closely.

Your Culture

As you start your business, work to create a culture where you and your partners talk openly about ideas, issues, and concerns. Don't let small annoyances fester, or passively let your partners do things that you don't agree with. As with any relationship, the more you bottle up your own thoughts or ignore your partners' input, the more likely you are to end up in a major dispute. And your problems will be much harder to resolve if you don't have a history of compromising and talking things through.

Your Agreement

An agreement between you and your business partners is another important ingredient in conflict prevention. An agreement gives you a framework for operating your business and making decisions.

The agreement may have different names depending on your business structure—an operating agreement, a partnership agreement, a shareholders' agreement, or bylaws. You may also have a buy-sell agreement to spell out what will happen if someone wants to leave the company.

These agreements help you understand such things as how to vote on important decisions, what each owner is expected to contribute to the company, how to let a new owner in, and how to split profits and debts. A small business lawyer can prepare agreements customized to the needs of your business.

Handling Conflict When It Happens

Conflict between you and your business partners can be a good thing if it causes you to focus on issues within the company that need to be addressed. But it can also be destructive—draining your energy and making it hard to move forward.

What's in Writing

A good place to begin resolving any potential conflict is to look at the written agreements between you and your co-owners to see if they offer guidance. For example, you and your fellow LLC members may disagree on how to split your first year's profits. But your operating agreement probably explains what you should do. Always refer to your LLC's written documentation to see if the answer to your dispute already exists.

Listening and Mediation

Other disagreements aren't so easy to sort out. You and your partners may have different goals and visions, or you may have grown resentful and angry. If things have not deteriorated too far, try scheduling a meeting where everyone has a chance to talk—and everyone else must listen. By really listening to what your partners have to say, you may find common ground or be able to compromise.

Some people find it helpful to bring in a neutral third party to facilitate the discussion. You can also schedule a session with a mediator who will try to move you toward agreement. Check with your lawyer or local bar association to find someone who has experience mediating small business disputes.

Professional Guidance

At some point, you may want advice from a lawyer, especially if you believe the company's well-being is at risk or if someone has threatened legal action. You may need to talk to someone other than your usual business lawyer, who may have a conflict of interest in advising both the business and its owners individually.

It takes effort to keep a relationship healthy and productive, and your relationship with your business partners is no exception. Learning to listen and compromise, and seeking help when you need it, are keys to keeping your relationship—and your business—on track.

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