I've Had A Falling Out With My Business Partner - Now What?
“When you entered into the partnership with your business partner (or partners), hopefully you took the time to have a partnership agreement drafted, and hopefully it was done with the level of skill and care required to reflect the agreement between the parties. If you did, then you will have a carefully prepared dispute resolution process to step through in the event of a dispute.
Partnership disputes can arise for a variety of reasons, for example issues relating to payments to a partner (either an over payment or an underpayment); difference of opinions on expenses, profits, operational matters etc; a conflict of interest by one of the partners (or a perceived conflict of interest); personality differences; general stress and pressures and poor communication. These are all common areas for disputes within a partnership.
When a partnership dispute arises, it is important to take the time to check your partnership agreement, and carefully comply with the requirements set out for dealing with disputes. For example, often written notice is required to be given to the other partner/s, and time frames generally apply for the parties to take steps, in good faith, to seek to resolve the matter.
If you are in the unfortunate position of not having a written partnership agreement, you will need to rely on the provisions set out on the partnership act specific to your jurisdiction, to the extent that this may be helpful. This can make things a little tricky, so you should seek legal advice to understand what your obligations are.
Here are my Top 5 Tips for what to do when you are involved in a partnership dispute:
1. Talk to your partner to understand as best as you can, what the issues in dispute really are. It is easy for misunderstandings to arise, especially when communication is via email or text (or worse, through third parties). A calm, one-to-one conversation can go a long way to identifying the underlying issue/s.
2. Review your written partnership agreement to be clear on what steps you now need to take to ensure compliance with your partnership agreement. If you are not sure, ask your business lawyer.
3. Follow the steps set out in the partnership agreement, in good faith. Ideally things won’t escalate to a dissolution of the partnership, or worse, litigation, but if they do you need to ensure you have complied with all necessary steps and are not in breach your obligations. Again, if you are not sure of exactly what you need to do, ask your business lawyer.
4. If the dispute relates to finances, involve your accountant to see if the matter can be resolved factually, and without emotion. Often the assistance of a professional third party can help clarify/explain matters which can assist in being able to move matters forward.
5. If the dispute is not capable of being resolved between the parties or with the assistance of your accountant (or other suitable third party), talk to your business lawyer to obtain legal advice to understand each party’s obligations and options from here, both in terms of the partnership agreement and the applicable partnership act.
Remember, stay focused on what the real issues are and try to leave the emotion out of it. In my experience, dealing with unnecessary emotions in a partnership dispute can blow matters out of proportion, and can see the parties caught up in unhelpful issues - which ultimately costs all involved a great deal more time and money. ”
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Tracey Mylecharane - Solictor
Tracey Mylecharane has more than 12 years’ experience in legal practice and has developed considerable knowledge of business and commercial law issues. She has acted for small and medium businesses across several industries and has been able to assist clients with a vast range of issues from start-up structures and systems, supplier and third-party contracts, to partnership break-ups and dispute resolution (both in and out of court).