Protecting Yourself And Your Business From Partnership Disputes

Entering into a partnership model opens unprecedented doors for your business to flourish. Not only does it welcome a large pool of expertise to take control of the business, but it also enables increased cost savings and capital accumulation.

However, you never really know when things may take an ugly turn. When this happens, it’s essential to have a backup plan that protects your interests and the interest of the business. If you’re unaware of where to start, here are some conducive steps you can take to ensure no serious harm comes to you or your business in case of disputes.

Draft A Partnership Agreement

A partnership agreement is a helpful precautionary measure for all the partners involved in a business. A partnership agreement alone can cater to varying degrees of conflicting scenarios and ensures that the business is not forcefully dissolved in the case of a dispute.

It highlights the role of each partner in a business, explaining their rights and responsibilities and how the ownership is divided among each partner. Furthermore, a partnership agreement sets the benchmark for how company decisions will be made.

In case one of the partners goes against the business contract, the partnership agreement lays out a plan for how they would be reprimanded and what would happen to their stake in the company. This way, you would have a smooth way out in case of unforeseen eventualities and complete autonomy to lead your business according to your terms.

Assess The Liability Of The Partnership

One of the first aspects of business that comes under fire during partnership disputes is the assets of the business as well as yourself. If your business is under unlimited personal liability, you’d be personally accountable for any losses that could arise from the dispute.

In a limited liability partnership, the business model is seen as responsible for its losses or debts and has ownership of all its assets. The partner, on the other hand, is recognised as a separate legal entity. This means your personal liability in relation to the company would be fairly limited, and your personal assets would be, thus, protected.

Even if your business started as an unlimited liability company, you could always change it to limited liability, depending on the agreement of partners. In conclusion, having an LLP, allows you to have complete control over the ownership of your business and personal assets, even in case of dissolution or conflicts among partners.

Construct A Financial Safety Net

In any situation, safeguarding your financial interests is the primary concern for any partner. Thus, when you’re writing up a partnership agreement, make sure to set a limit for the amount of debt that can be associated with the partnership without your permission.

Moreover, you can also invest in a thorough insurance policy that will preserve your company from any possible losses. Ultimately you can also devise a plan with your fellow partners to conserve enough capital in place to fulfil any liability obligations.

Plan A Separation/Exit Clause

The problem with business partnerships is that conflict is inevitable. While some of them can be resolved swiftly, others can escalate to a horrible extent making partners change their minds about the whole partnership.

Since you can’t be certain about your company’s future, make sure to plan an exit strategy no matter how confident you’re about the partnership. Include a separation clause in your partnership agreement that sets the ground for actions to take in case a partner leaves the company or passes away unexpectedly.

A separation clause answers questions such as the amount of compensation a partner would receive in such a case or how their name would be removed from important company contracts such as loans. It also lists the details of how the exiting partner will be protected should another partner file a lawsuit against them.

Consult A Law Firm

Not all issues can be cleared up comfortably, and if you find yourself in such a situation, taking legal help can be the best course of action. An experienced law firm can help ease the tension by referring to the company's partnership agreement. In the absence of a partnership agreement, it can apply the Partnership Act to determine the optimal strategy for you and the business.

If you’re stuck in an ugly business partnership dispute or are seeking a consultancy to concoct a comprehensive partnership agreement for the business, Mishoura can help you choose the most suitable lawyer saving you time and money. Share your query with us today and will send you a shortlist of suitable law firms in 90 minutes.

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