People who go into business with others often picture things working ideally, with everyone agreeing, or talking through their disagreements until they reach a consensus. While this is always the goal, sometimes partnerships don’t work out this way in the real world. Partners may find that they disagree and can’t reach a resolution on their own, and one or more partners may decide to take the others to court over an issue. In these situations, a Florida partnership dispute lawyer may be able to help.
Common Reasons People Seek the Help of Business Partnership Dispute Lawyers:
Breach of fiduciary duty. Sometimes clients come to us because they are concerned one of their partners is failing in their duty to the company. This can mean many things. In some cases, the partner may have misappropriated company funds, or directed them to things that benefit the partner personally. For example, if you found out one of your business partners awarded a contract to a company they own a considerable amount of stock in, you might have concerns. Other issues may include under-the-table deals or doing work “on the side” for certain clients. However, there are many different ways a partner can negatively impact the business’ interests, so if you have concerns about their ability to perform their fiduciary duties, you should consult a partnership dispute lawyer right away.
Disputes about allocation of company resources or assets. This is another common situation that business partnership disputer lawyers encounter. E.g., one partner wants to invest a significant amount of the company’s money or other assets into something—a new building, an investment fund, equipment or materials, hiring X new employees, etc. Unlike with a breach of fiduciary duty, these disputes can happen even if no one has ulterior motives for personal gain. Often, partners just have different ideas about what will make the company successful.
Ideally, the company’s partnership agreement should spell out how decisions will be made, who will have what authority, and how disputes should be resolved. For this reason, if you’re in the process of forming a new partnership or other kind of business, hiring a business attorney to help with your business agreement documents is highly recommended. A well-written, clear, concise agreement may help avoid many disputes.
However, your company may have already put together an agreement in a hurry and it may not address all concerns about decisions. Or, even if you have a solidly written agreement, you may still run into difficulties. For example, if your agreement requires the board to vote on expenditures over X amount, but you can’t come to a clear majority and are deadlocked, you may find yourself in a big disagreement. All of these situations can lead to a company working out its partnership dispute in court. In some cases, your attorney may be able to help you work through things out of court using dispute resolution, which we’ll talk more about later.
Failure to delineate authority. This issue goes back to our earlier point about having a properly-written partnership, operating, or business agreement. When authority to make certain decisions hasn’t been spelled out, partners may disagree about who decides what. Some board structures may seem like a good idea but, in practice, it may turn out that even splits are common when voting.
Other issues may come up when the contract isn’t clear enough about what “authority to make decisions” means. What if you decided one partner would be in charge of a certain department. Does that mean they make all decisions autonomously? What if the board decides they don’t like one major decision this person has made, and they want to override it? Questions like these inspire many people to contact a partnership dispute lawyer.
Unfair distribution of workloads. Sometimes people will go into business with friends, family members, acquaintances, or even strangers. They might agree that all the partners will work to make the business a success but, in reality, it turns out that one or more partners aren’t pulling their weight. Sometimes one partner will say, “Well, I invested the most capital, I’m a silent partner.” If that wasn’t specifically agreed to in the partnership agreement, it can be a challenge for the other partners.
In other scenarios, a partner might agree to be “silent” and indeed refrain from doing any work, but then decide they want a say in making decisions for the company. Maybe they only want to contribute to some decisions, when they feel like it. They invested a large chunk of the seed money, why shouldn’t they get a say when they have an opinion about something, even if they’re not involved in the day-to-day operations of the business? Of course, this attitude often causes friction with other partners who may be working long hours and have a better understanding of the situation than their “silent but not so silent” partner.
Disclosing confidential information. This sometimes fall under breach of fiduciary duty. If a partner has shared confidential company info with someone outside the company, for any reason, it can create difficulty for the business. Even if it is not immediately harmful to the company, other partners may no longer trust this person.
Contract breaches or failure to fulfill duties. Partners may breach the terms of a partnership agreement in many ways. They may fail to do the job they promised to do, whether it’s supervising a department or managing cash flow. They may ignore the terms of their agreement and overreach, making promises to customers or suppliers that they don’t have the authority to make. There are numerous ways a partner can fail in their duties or violate the partnership agreement. If you believe this has happened, an experienced partnership dispute lawyer can help you learn the options in your particular situation.
Personal or management conflicts. Sometimes partners realize that their styles of decision-making clash, or they just have very different ideas about how to run the company. Disagreements over strategy tend to keep happening and can snowball into major conflicts. In some cases, it may make more sense for one partner to buy out another, or for decision-making to be delineated differently if the partners can agree on a solution.
There are several methods of dispute resolution you and your attorney may discuss trying, whether or not the judge orders it, before proceeding to court:
Arbitration. In an arbitration, a neutral third party called the arbitrator will listen to both/all arguments on the matter, then make and issue a decision about what should happen next. Their decision is legally binding.
Mediation. Similar to arbitration, this method involves a neutral third party considering all the arguments in a business partnership disagreement. However, in this case, the mediator does not perform the role of decision maker in the case. In this situation, they are more like a counselor who helps the parties talk through their differences and may suggest alternative solutions none of the parties have considered. Sometimes they are able to help the litigants reach a compromise. If this does not happen, the parties may move on to a court proceeding.
Negotiation. This very common type of dispute resolution the parties may attempt on their own. In negotiation, there is no third party and the litigants attempt to work things out on their own. Keep in mind that “on their own” simply means that there is most likely no independent third party, like an arbitrator or mediator, to help. You should have the counsel of an experienced Florida partnership dispute lawyer for this process.
Although you may proceed to court if you can’t work things out, negotiation can continue throughout the litigation, including trial or other proceeding. Sometimes one party may decide things aren’t going well for them in court and they’d like to make an offer to settle things. Or, they may simply decide the time commitment, expense, or stress of a trial is not worth whatever they were hoping to gain. If you receive a settlement offer at any point, your attorney will go over it with you so that you can make an informed decision.
Are There Any Ways to Avoid Partnership Disputes in the First Place?
Although not every dispute can be avoided, there are some steps you can take to reduce the risk. First, communicate with your partners regularly and honestly. Many disputes arise from a lack of communication between partners. Sometimes disagreements are much worse than they have to be because one partner learns shocking news in an unexpected or public way, or when it’s too late for them to act on this information. In other cases, a partner may simply have misunderstood a situation or why a partner made a particular decision. When you’re uncomfortable with a decision in a partnership, it never hurts to ask for clarification on what will happen or how or why the decision was made.
That being said, communication is a two-way street. If you feel a partner is being uncommunicative despite your best efforts at open communication, you may need to keep an eye on the situation. Whenever you start having concerns about a partner, it never hurts to document anything you see or hear that concerns you. Hang onto emails or texts between partners that worry you. If a difficulty rises to the level of a dispute, these records may be helpful when you speak with your attorney.
One of the best ways to avoid disputes is to ensure that your partnership agreement and other legal documents pertaining to your business have been reviewed by your business lawyer before you sign them. Many disputes can be avoided if chain-of-command, decision making duties, division of labor and profits, and other issues are clearly spelled out in the partnership agreement and understood by all parties before the business is formed. An attorney can help you understand everything in your partnership agreement, answer any questions you have, and point out any issues you may have missed addressing in the contract that could lead to disagreements later.
If you need assistance with your business transaction case, or have questions about any potential legal matter, please contact Apfelbaum Law for a consultation. You can also check out our Business Disputes practice area. We have offices in Port St. Lucie and Stuart, but provide legal services throughout the Treasure Coast and Florida.