High Caliber Legal Service

5 common reasons for partnership disputes

On Behalf of | Feb 17, 2021 | Business Law |

Creating a business in Texas can be a risky proposition as statistics show nearly half of all new ventures fail within the first five years. Working with a partner can be a great way to raise capital and share the burden of starting something from scratch.

Unfortunately, even when partners draft comprehensive partnership agreements, disputes often arise and they can happen to thriving businesses. Friendships, and sometimes family connections, can be irreparably harmed.

What are the leading causes of disputes?

Every business has its ups and downs. But, in general terms, serious conflicts between partners often result from these five reasons:

  • Financial: This is most common when a business experiences financial stress and there are no clear rules over how partners share profits and liabilities. Accusations of misusing business assets for personal gain can also lead to considerable strife.
  • Authority: Partners, who are supposed to be on equal footing, sometimes don’t respect the other’s expertise and overstep their boundaries. This can happen even when a partnership agreement is in effect, outlining each person’s responsibilities.
  • Use of income: Partners often disagree on the best way to reinvest profits to grow the company. One may want to increase marketing efforts, while the other may want to focus on producing a new product that will increase their foothold in the market.
  • Workload: Disagreements develop if one partner believes they devote more of their time to the company’s success. This can happen when one partner puts family responsibilities ahead of their ownership duties. Even when that’s the proper choice, the other partner can become resentful.
  • Objectives: Partners should discuss their overall plans for the company and what success means. Does one want to see rapid expansion and aggressively invest profits or raise new capital, while the other favors a more conservative approach?

Resolving partnership disputes

These disagreements can often be worked out through negotiation, regardless of whether they involve straightforward or complicated matters. When a partnership dispute leads to a stalemate, it’s advisable to work with an experienced civil litigation attorney, who will seek a peaceful agreement, or vigorously represent you in court when necessary.

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