5 Ways You Can Prevent Partnership Disputes in Your Business’ Future

Countless people enter into partnerships every year, whether they know it or not, as many states will recognize the legal existence of a partnership anytime two or more people work together with a common business purpose. The fact that you and others are legally partners – again, whether you have a formal or even an informal partnership agreement – presents great opportunities but it also presents great risks. On the one hand, you can be legally liable for another partner’s actions, but you and your partner may also have disputes which can land you in liability while also endangering the profits and property related to the partnership itself. Here are five ways you can prevent partnership just such disputes from arising.

Draft a Clear, Comprehensive Partnership Agreement

As stated above, there is generally no requirement for you to have a partnership agreement in order for state law to recognize your joint venture with another person as a partnership for legal purposes.

 

Which is exactly why it is so important for you to take action as soon as possible in the life cycle of your partnership to create a partnership agreement which reflects your responsibilities, rights, obligations, and other matters. Of course, your business will change and evolve over time, and your agreement may need to be amended accordingly, but there is no reason to delay creating even a basic partnership agreement at the outset.

Make Clear What Rights Partners Have to Profits

One of the key issues that your partnership agreement should address is what rights each partner has to the profits earned by the partnership. Will it be 50/50 down the middle, or will the profits be apportioned to reflect contributions, labor, sales metrics, or some other factors?

 

By failing to address profits in the partnership agreement, a court may later impose a profit structure different than yours, and the damage may be done in the form of ruined trust and high legal fees.

 

Specify the Roles and Duties of Each Partner

Your agreement should also contain a clear description of the roles and duties each partner will have in the partnership. Is one partner solely responsible for recruiting and sales efforts, for example? Or are both partners expected to put their full efforts into every aspect of the business? A failure to include this could lead to resentment, arguments, and even a lawsuit.

Have an Understanding on Partnership Management and Control

Related to the question of what duties each partner will have is the question of who will be able to make important decisions on behalf of the partnership and how the business will be managed on a day-to-day and long-term basis. Partners do generally have the right to bind the partnership to transactions entered into by only one party, and thus your agreement should make clear how such decisions should be made, e.g. transactions over $5,000 require a unanimous vote by the partners.

Agree on What Financial Contributions Each Party Will Make

Just as the agreement should specify what rights to profits the partners have, it should also include information making clear what financial contributions are expected of each partner. This relates to both property contributed to the partnership at the start of the venture, as well as ongoing financial contributions that the partnership may want to demand of its partners.  

Work With an Experienced Los Angeles Partnership Dispute Attorney

At Wagenseller Law Firm in downtown Los Angeles, our attorneys have extensive experience in resolving all types of partnership litigation matters, including those related to fraud and alleged breaches of the duty of loyalty and duty of care. Contact Wagenseller Law Firm today to schedule a consultation to discuss your partnership dispute.