What can a partnership agreement do during a dispute?

On Behalf of | Jan 18, 2023 | Business Litigation |

One of the most important things to do when starting a partnership as your new business is to create an official partnership agreement. This is a binding contract that helps to define your company and your relationship as it gets off of the ground. For instance, it can identify the ownership percentages held by each of the partners.

But what if a dispute occurs? This is a great time to have a partnership agreement already in place. That dispute may not take place until years after you sign the document, but it can still be helpful. Let’s look at three ways that it may assist you.

Preventing disputes

First of all, a partnership agreement can actually prevent some disputes from taking place. For example, partners might disagree about money or what roles they have at the company. But your partnership agreement can define those roles and your salaries, so there’s no reason to have a dispute about it unless someone wants to change the standing definitions. But you don’t have to worry about any sort of miscommunication because you’re both on the same page from the beginning.

Resolving disputes

Next, a partnership agreement can have dispute resolution steps already built into it. Businesses with multiple owners may stipulate that decisions have to be put to a vote, for example. A partnership between just two people may need to go to court, but there could be steps you could take in advance to try to find a compromise. Having a playbook of the steps to take can certainly be beneficial.

Leaving the business

Finally, the partnership agreement can just define what has to happen when someone wants to exit the business. Steps they may need to take include selling their share of the ownership or providing a certain amount of advance notice so that the business owner who remains can make accommodations to continue running the company.

Working with a partner can be complex and it’s always important to know what legal steps to take.