The Most Common Causes of Partnership Disputes

Within any business partnership, there will be partnership disputes. Some will be a lot more serious than others. However, there are common triggers for partnership disputes that our business partnership legal experts can help prepare for and overcome. By being aware of the most common causes of partnership disputes you can prepare to avoid these triggers, for a smooth partnership.

One of the most common causes is management and financial concerns. This will be disagreements surrounding strategic decisions as well as the day-to-day operational control of the business. There may be queries surrounding profit sharing, expense allocations and capital contributions. Concerns surrounding management and financial issues can quickly lead to partnership disputes is not properly managed.

Another common trigger for disputes will be around the breach of duties. There can be allegations of unauthorised transactions or a conflict of interest for example. You may come across a diversion of business opportunities or misuse of partnership assets. In some cases, the failure to properly account for funds can become a serious dispute between partners.

You may find that there are conflicts concerning performance issues. This may be where a partner fails to meet the obligations required. They may engage in misconduct, damage the reputation of the partnership of even breach the terms within the partnership agreement.

When beginning the partnership, you are often looking forward to the future, not the exit. However, a poorly drafted succession plan for the partnership can lead to serious disputes too. This is why you need a contract in place that lays out the succession plan. It should include notice periods, valuation of interests, ongoing restrictions and buy-out provisions.

Business valuations can often lead to partnership disputes too. This is where the valuing of a departing partner’s interest is a frequent flashpoint. Disputes can arise surrounding fair value methodologies, goodwill inclusion and work in progress treatments. You may also have disputes surrounding minority discounts and valuation timing.

If you are entering into a partnership and want to avoid these common causes of partnership conflicts, call our legal partnerships specialists. We can negotiate, draft and review a partnership agreement that will protect the business and the partnership.