Real-World Solutions To Real-World Challenges

Can I avoid partnership disputes?

On Behalf of | Jul 28, 2021 | Business Formation & Planning |

Collaborative efforts are imperative to bring a company to scale. Business partnerships expand skill sets, networks and, typically, the investments necessary to establish a foundation for success.

As with any relationship, it’s natural for a business partnership to evolve over time. Disputes may be common, but they don’t have to be the accepted norm.

Consider this before going into business together

Projected profits appear attractive for entrepreneurs eager to reap the rewards of their labor, although bringing a project to fruition is virtually impossible to do on your own. So, how can you balance the need to involve others in your project with the perceived sacrifices involved?

Check your ego. No matter the scope of your previous business experience or the amount of capital you are prepared to put at risk, a team approach requires an openness to your partners’ ideas, opinions and experience which may be significantly different from yours. Sharing risk and reward comes hand-in-hand with the responsibility to do what’s right for the enterprise. Research potential business partners before committing yourself to any contractual arrangement. Proper diligence of any potential partner is a must. Better to find out and then deal with any negative information before you commit to a potential partner and place yourself in a position of risk.

Personal versus business. Entering into a business relationship with someone with whom you already have a personal relationship may seem, in the first instance, to be the best way to create a business. However, before you do, you should carefully think through the potential ramifications. For example:

  • Is the decision based on personal loyalty or on demonstrated business acumen? Is the value of any potential contribution outweighed by the potential negative impact on the relationship? Would you be prepared to destroy that relationship if the survival of the enterprise required you to do that?
  • Do you value the personal relationship more than any potential business outcome or your own personal success? The unfortunate reality is that many partnerships fail to survive the commitment involved in operating a successful business. Would your personal relationship suffer if the business failed and is that worth the risk?
  • How would you divide responsibilities? A comprehensive written agreement must be put in place to establish the roles, duties and responsibilities necessary for the successful operation of the business. The absence of such a detailed contractual framework only serves to increase the likelihood of resentment, discord and disputes when one person feels that he or she is carrying more of the burden than someone else or is not being properly rewarded for his or her efforts.

Shared vision. Agreement about time commitments and financial commitments should align with long-term organizational goals.

Collaborative efforts must leave room for individual personalities and thought processes. That said, there is no better way to mitigate risk when forming a partnership than for the parties to have a comprehensive written agreement.