A business partnership can be a good way of pulling resources, influence and technical know-how together to attain common objectives and ultimately increase the profitability of a business outfit.
Unlike sole proprietorship, decisions—major or minor—cannot be taken alone without discussing with other members of the partnership. Differing opinions about issues can cause tension in the partnership, which could threaten the survival of the business if care is not taken.
Aside from disputes that may arise from the decision-making process, other factors such as differing goals and expectations, financial matters, unequal distribution of workload and responsibilities, breach of trust, etc., can also put the partnership at risk.
The main aim of this article is to provide a guide on the steps to take when a dispute is rocking the boat of your business partnership.
The steps to take when there is a disagreement between business partners depend on the nature of the dispute, the desire for continuity, the availability of a written agreement and the broader implication of legal action. Without further ado, let us discuss the courses of action that could be taken.
Understand the Nature of the Dispute
The first step in resolving a business partnership disagreement is understanding the nature and scope of the dispute. This is necessary so as not to “assume” there is a conflict when it is only an attitudinal issue that can easily be resolved or overlooked. Sometimes, the contributing factors to a dispute may come from the ‘victim.’ It is not out of place to be objective in evaluating the reason behind the unacceptable behavior of a business partner. Also, allowing disputes to fester can have greater implications beyond the parties involved. A critical and objective analysis of the reasons behind a dispute can provide a guide in the approach to resolving it.
Communicate
Many relationships fail simply due to a lack of adequate and proper communication. The importance of clear and effective communication between business partners cannot be over-emphasized as many internal and external factors interplay to affect the smooth running and existence of businesses. This makes constant engagement very vital among business partners so as to proffer solutions to the myriad of problems facing the established business outfit.
However, if actions are taken without consultation with a business partner, then even the best intentions could be misconstrued. When a disagreement arises, open and honest dialogue is the first practical step to resolving it. Such conversation should be:
- Done in an atmosphere of mutual respect
- Factual and devoid of any sentiment
Identify common grounds
Finding common ground is paramount in a mediation process, as it can greatly help to find a successful resolution. This entails acknowledging and emphasizing common interests, values, and goals by all the concerned parties.
Mediators help to facilitate this through verbal interaction and active listening, enabling every party involved in the conflict resolution process to express their side. Mediators can help all parties see the potential in focusing on areas of agreement rather than disagreement, which encourages trust and cooperation. This builds a foundation for problem-solving! This approach will not only resolve the immediate dispute but also maintain a positive relationship between parties, contributing to long-term togetherness and mutual respect.
Solution-inclined
During a dispute, when the parties take a solution-focused approach to mediation with an open mind and heart, the outcomes are often better for all in the long term. It generates a sense of healing when both parties and mediators focus on working towards finding practical solutions that advance common objectives and beneficial interests, rather than getting bogged down in arguing past wrongs or assigning blame.
The good news is that this positive approach encourages creativity and flexibility by allowing the parties to brainstorm a full range of possibilities, from simple trade-offs to mutual goal-based compromises. This translates into more innovative, customized solutions that will, in turn, achieve greater satisfaction and positive reinforcement around the agreement. Furthermore, this problem-solving mentality can reinforce relationships and improve communication, paving the way for more positive interactions in the future.
Neutral Third Party Involvement
The two main out-of-court methods for resolving business disputes are mediation and arbitration. In both cases, an unbiased third party will endeavor to help resolve the dispute between the business partners.
In mediation, the third party (mediator) facilitates dialogue, encourages understanding, and assists in negotiating a settlement. The partners then agree upon the final decision. This decision is not binding and cannot be legally enforced.
In arbitration, the third party (the arbitrator) considers the presented cases and evidence of the disputing parties and then comes up with a verdict that both parties are bound to obey. It is a more formal process than mediation but less formal than litigation. The verdict of the arbitrator is legally enforceable.
Both alternative dispute resolution methods can be exploited as they save funds, time and even relationships.
Buying Out The Other Partner
In situations where the continued relationship with one or more of the business partners is impossible, partners who still want the business entity to continue can buy out the stake of others who are willing to exit the partnership. The buy-out process will be carried out as documented in the partnership agreement. However, if no partnership agreement is made, then there will have to be a negotiation about how to value the company’s assets, estimate each partner’s equity, and then eventually formulate a buy-out term.
Sell Out Option
The partners can decide to sell out the business to an external buyer when forging ahead together is considered impossible. To achieve this, the services of expert business valuators, business brokers or experienced business lawyers must be contracted to get a good sell-out deal.
Squeeze-Out Merger
Sometimes, majority stakeholders in a partnership can form a merger that will ‘stifle out’ a minority stakeholder. This can be necessary when certain minority shareholders are perceived as the cause of the dispute. Care must however be taken when playing the squeeze-out merger card, as it can sometimes be overturned in the law court as an unfair business practice.
Lawsuits
Filing a lawsuit against a difficult business partner or partners should be the option of last resort after all else has failed. Taking this step may not be in the best interest of all parties involved, as it may be financially involved and could cast a dent in the organization’s public image. Also, even when one party wins the litigation case, the relationship between the business partners may become frosty.
Dissolution
Triggering the dissolution clause in the partnership agreement might be the way to go when all parties have agreed there is no more future together. This is also a last resort path that is less expensive than litigation.
In Conclusion
There is no single answer to resolving business partnership disputes. However, a clear understanding of the nature of business disputes and making room for dialogue will give the needed guidance on the approach to choose. Sometimes, a combination of strategies may be necessary. However, after all, if fewer ‘aggressive’ options are exhausted, a more direct approach to litigation or the dissolution of the partnership can be activated. In all, a good sense of judgment, objectivity, and fidelity to the written partnership agreement (if any) will help diffuse any disputes in the brewing partnership.
Published by: Martin De Juan
