Five Reasons for Partnership Disputes

People are typically excited to begin a business and it can often be a whirlwind. Perhaps you have an exciting new product or already have potentially lucrative opportunities. In any event, it’s common for the partners to quickly draw up a partnership agreement just to get the business off the ground and move forward. Unfortunately, that partnership agreement that was perfectly adequate at the outset can later lead to disputes among your partners as you struggle to apply it to some of the important considerations that arise once your business is more established.

It is not unusual for partnerships to form without any meaningful discussion regarding the partners’ individual philosophies when it comes to building and sustaining a business. Instead, the focus is on what opportunities, talents, or other resources each partner brings to the table. While this is understandable, rifts can develop when partners cannot agree on how to run the business. Some consideration should be given to how to best grow your business, the type of culture you want to encourage, and your willingness to take on risk.

It’s fairly common for each partner to bring different resources to the partnership. For example, one partner may have an extensive network of clients or customers, while another has vital contacts in the industry you operate in. Another partner may have had the financial resources to fund the business as it was starting. Each partner brings their own unique value to the business, but it can be easy for disagreements to arise over whose contribution was more valuable.

Often closely tied to contributions, compensation is another common source of partnership disputes. At the outset, it may have made sense to distribute business profits equally among the partners. As the business develops, this may no longer be desirable or practical. A compensation structure that may have made sense when the business started can quickly lead to partnership disputes further down the road. Will compensation be determined simply by a partner’s individual revenue? How do you account for the generation of new business, or time devoted to internal business operations? These are questions that need to be given careful consideration.

Finally, many partnership disputes arise simply because it isn’t clear as to who is responsible for managing certain aspects of the business. Entrepreneurs tend to be people with strong opinions who favor bold action - qualities that help them build successful businesses but can strain relationships with business partners. Without formal roles that clarify individual roles and responsibilities, partners can easily come into conflict with each other.