What Happens If You And Your Business Partner Fall Into Dispute?

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Even the most harmonious and productive of business partnerships run the risk of falling into dispute as the challenges of running a successful business take hold.

We understand just how difficult and disruptive disputes between partners can be for your business. Finding swift, cost-effective solutions is therefore essential to help all parties move on and to ensure that the business experiences as minimal an impact as possible.

If you and your business partner find yourselves in a dispute, several steps can be taken to resolve the issue.

First and foremost, it is advisable to attempt informal negotiation and communication to reach an amicable solution. If this fails, you may consider mediation, where a neutral third party helps facilitate a resolution.

If mediation does not work or is not suitable, you can pursue legal action through the courts. This typically involves filing a claim in the appropriate court, and the process can vary depending on the nature of the dispute. The court will consider evidence and arguments from both sides and make a judgment accordingly.

In some cases, if your business has a partnership agreement or articles of association, these documents may provide guidance on dispute resolution procedures. Ultimately, the outcome may result in the dissolution of the partnership, a buyout of one partner by the other, or a court-ordered remedy, depending on the specifics of the case and the court’s decision.

Whichever method is most suitable, legal advice from a solicitor experienced in partnership disputes is crucial to navigating this complex process effectively.

In this article, we will explain what happens if you and your business partner fall into dispute and the actions that can be taken to mitigate it.

Mediation and Negotiation

When business partners find themselves in a dispute, the first step is typically to attempt mediation and negotiation. This involves both parties trying to resolve their differences through open communication, often with the assistance of a trained mediator.

Mediation and negotiation can be invaluable tools for resolving disputes with your business partner. They promote open and constructive communication, helping parties understand each other’s perspectives. Mediators facilitate a neutral environment where compromises can be reached, potentially preserving the partnership.

These methods are often faster and more cost-effective than going to court. Most importantly, they empower partners to retain control over the outcome, rather than having a judge impose a decision.

Alternative Dispute Resolution (ADR)

If mediation fails, alternative dispute resolution methods like arbitration may be pursued. Alternative Dispute Resolution (ADR) offers a less formal and more cost-effective way to resolve disputes compared to going to court, and the decision is usually binding.

Parties can choose impartial arbitrators  who specialise in their industry, ensuring expertise in the subject matter. ADR decisions are often binding, offering a final resolution. This process maintains privacy, allowing partners to keep sensitive matters confidential.

ADR empowers disputing parties to maintain some control over the outcome, fostering a collaborative approach to problem-solving and potentially preserving the business relationship while avoiding the delays and expenses associated with traditional court proceedings.

Legal Action

If ADR is not successful or not applicable, business partners can resort to legal action by taking the dispute to court. You may file a claim, and the court will decide the outcome based on evidence and applicable laws.

By taking the matter to court, both partners can rely on established legal procedures and protections. A judge will carefully evaluate the evidence and apply relevant laws to make a binding decision, ensuring fairness and adherence to the law.

Legal action can offer a clear and formal resolution, settling contentious issues definitively. However, it tends to be more time-consuming and expensive than alternative methods, potentially straining the business relationship further. Still, in cases where negotiation or mediation fails, legal action can be the necessary step to achieve a final verdict.

Specifying dispute resolution procedures in a Partnership Agreement

The resolution of disputes can also depend on the terms outlined in the partnership agreement. Business partners are encouraged to have a clear and comprehensive partnership agreement in place that specifies dispute resolution procedures, such as mediation or arbitration, to avoid unnecessary litigation.

A well-crafted Partnership Agreement is a vital tool in resolving disputes between business partners. Partnership Agreements also defines the rights, responsibilities, and expectations of each partner, reducing ambiguity and potential disagreements.

A Partnership Agreement often contains clauses for the buyout or dissolution of the partnership, offering a structured exit strategy if the dispute cannot be resolved.

This legal document serves as a reference point, helping partners navigate disagreements more efficiently and ensuring that the resolution aligns with your initial agreements, ultimately preserving the business’s stability and integrity.

Dissolution of the Partnership

In some cases, disputes can lead to the dissolution of the partnership. If both partners cannot reconcile their differences, you may choose to dissolve the business and distribute assets as per the partnership agreement or relevant laws.

Dissolution of the partnership, while often seen as a last resort, can be a helpful solution when business partners reach an irreparable impasse. It allows for a clean break, enabling each partner to go their separate ways and pursue individual endeavours.

This process typically involves the equitable distribution of assets and liabilities as specified in the partnership agreement or by applicable laws. While it may signify the end of the business, it can also provide closure and relief from ongoing disputes, allowing you to move forward independently and potentially avoid protracted legal battles that could further harm your interests and relationships.

How Longmores can help with partnership disputes

We know that disputes between business partners can have a major personal toll, as well as having a direct impact on the business.

Finding a swift resolution that limits any potential disruption is essential, and our team can help you choose the best route forward.

To discuss how you might resolve your business dispute with experienced and proactive solicitors, please get in touch with our Dispute Resolution team today.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.