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Strategies for Resolving Partnership Disputes

People who go into business with a partner often do so while wearing rose-colored glasses. No one ever expects disputes to arise among people who are willing to go into business together. Yet, all too often it happens. Partnership disputes can often be high stakes; the future of the business itself may be on the line. In an ideal world, people can plan ahead for disputes, and make sure that there are procedures in place for resolving them. However, even without strong procedures in place, there are still a variety of options for settling disagreements between partners.

Plan Ahead

The best advice for resolving partnership disputes is to plan ahead. Partnership agreements can include all sorts of provisions designed to aid in solving future disagreements between the partners. One of the most obvious is to apportion unequal voting shares between the partners. This easily clarifies who has the decision making authority between the partners, but it comes with a couple problems. First, many partners consider themselves equals and are not comfortable with one person taking control like that. Additionally, it can still lead to litigation because one partner feels like their voice is not being heard.

The other common way of settling partnership disputes among equal partners is to build tiebreaker provisions into the partnership agreement. These tiebreaker provisions can take many different shapes. Some give the decision to one partner after ensuring that there is a process for debate. Others call for the use of a neutral third party to make the decision. There are also more sophisticated tiebreakers such as the “shotgun” provision.

A shotgun provision is an agreement between two partners that either can invoke in instances of disagreement to allow one person to gain control of the company. The invoking partner names a price per share. The other partner then decides to either sell their shares to the invoking partner or to buy the invoking partner’s shares at this price. The fact that the invoking partner could be on either side of the transaction encourages them to name a fair price.

Options after a Dispute Starts

Of course, partners seeking to resolve disputes still have options if they did not include any of these structures in their partnership agreements. Assuming basic negotiation has broken down, partners can resort to mediation or arbitration to resolve their difficulties. Mediation involves using a neutral third party to help bring the partners to an agreement in negotiations. Mediators do not have the power to bind parties to an agreement, but they can often help move people off of stuck positions. Arbitration is a more severe option, that involves both partners presenting their claims to an arbitrator. Unlike mediators, arbitrators do have the authority to bind parties, so they will ultimately be the ones making the decision. Both mediation and arbitration may involve the parties being represented by or consulting with attorneys throughout the proceedings.

If negotiations fail, the final option parties have is litigation. If you are involved in a partnership dispute and want to learn more about these different options, contact a West Palm Beach partnership dispute attorney at Pike & Lustig, LLP today.

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