Partnerships are built on trust, collaboration, and shared goals—but even the strongest alliances can face disagreements. When not handled properly, these disputes can disrupt operations, fracture relationships, and in some cases, threaten the very existence of the business.
Fortunately, there are legal tools and strategic approaches you can use to resolve disputes efficiently—and preserve the future of your company.
Common Causes of Partnership Disputes
Understanding the root cause of a dispute is the first step toward resolving it. Most conflicts fall into one of the following categories:
Financial Disputes
- Unequal Capital Contributions: When one partner believes their financial investment outweighs another’s contribution—or vice versa.
- Improper Use of Business Funds: Allegations of personal use of company resources or unauthorized spending.
- Profit Distribution Conflicts: Disagreements on how profits are divided, especially when roles or workloads are imbalanced.
Differences in Business Vision or Strategy
- Expansion vs. Consolidation: One partner wants to scale aggressively, while another prefers stability.
- Operational Priorities: Clashing ideas on product development, hiring, marketing, or technology.
Disputes Over Roles, Duties, or Workload
- Perceived Imbalance in Contribution: One partner may feel the other isn’t pulling their weight.
- Undefined Job Descriptions: Ambiguity around duties often leads to tension and unmet expectations.
Breach of Fiduciary Duty
- Partners owe one another a fiduciary duty—a legal obligation to act in the best interests of the partnership. Breaches may include:
- Self-dealing (using business opportunities for personal gain)
- Concealing critical information
- Competing with the business
- Making unilateral decisions that impact the company
- Tip: Early identification of the type of dispute allows for a more tailored and effective resolution process.
Step 1: Review Your Partnership Agreement
A well-crafted partnership agreement acts as your first line of defense against costly disputes. It should include:
- Dispute Resolution Clauses: Requirements for mediation, arbitration, or other methods before litigation.
- Decision-Making Protocols: Voting thresholds for financial or operational decisions.
- Buy-Sell or Exit Clauses: Procedures if a partner wants to leave or sell their interest.
- Valuation Methods: How the business or a partner’s interest is valued if a buyout is triggered.
No formal agreement? State law will govern the dispute. Most states follow the Revised Uniform Partnership Act (RUPA) or similar statutes, which may not align with your intentions.
For preventative measures, see A Guide to Drafting a Business Partnership Agreement.
Step 2: Open Communication and Consider Mediation
Not every dispute requires a courtroom. In many cases, direct communication or mediation can bring clarity and resolution.
Private, Structured Discussions
- Schedule a neutral time and space
- Focus on facts—not emotions or assumptions
- Bring documentation to support your position
Professional Mediation
- A neutral third-party mediator helps clarify positions, facilitate negotiation, and preserve relationships.
- More cost-effective and less adversarial than litigation.
- Especially useful when the dispute involves long-term partners or family-owned businesses.
Legal Counsel During Negotiations
- A business attorney can help protect your legal rights, draft settlement terms, and ensure the final agreement is enforceable.
- If your partnership involves intellectual property, real estate, or high-value contracts, legal oversight is critical.
Related reading: How to Handle a Business Contract Dispute
Step 3: Explore Legal Remedies When Resolution Fails
If informal negotiations or mediation fail, you may need to escalate the dispute to a formal process:
Arbitration
- Typically binding and faster than court proceedings.
- May be required if included in your partnership agreement.
- Confidential, preserving business reputation.
Litigation
- Filed in court, usually as a civil lawsuit alleging breach of contract, fiduciary duty, or statutory violations.
- Can result in court-ordered buyouts, damages, or dissolution.
- Riskier and more expensive, but necessary in some cases.
Dissolution of the Partnership
- When disputes are irreconcilable or the partnership becomes dysfunctional, dissolution may be the most viable path.
- Must follow legal procedures for winding down:
- Notifying creditors
- Settling debts
- Distributing remaining assets
Read more: A Guide to a Business Dissolution
Step 4: Protecting the Business During Ongoing Disputes
While the dispute is ongoing, it’s vital to keep the business running and legally compliant.
Secure Key Business Records
- Financial statements
- Operating agreements
- Employment contracts
- Tax filings
Ensure these are centralized and accessible to all authorized partners or advisors.
Communicate with Stakeholders
- Maintain transparency with employees, clients, and vendors as appropriate.
- Reassure them that the business remains stable and operations will continue.
Plan for Operational Continuity
- Delegate temporary leadership responsibilities
- Isolate the conflict from daily operations
- Document all internal decisions and financial moves to avoid further disputes
Moving Forward: Preventing Future Disputes
Once resolved, use the experience as a catalyst for strengthening your partnership.
- Amend or draft a stronger partnership agreement
- Define clear responsibilities and expectations
- Schedule regular partner meetings to promote transparency
- Implement financial checks and balances (e.g., dual sign-off on spending)
Useful Resources
Key Takeaway
Partnership disputes are difficult—but they don’t have to destroy your business. By:
- Identifying the source of conflict
- Reviewing your agreement
- Engaging in communication and mediation
- Consulting legal professionals when needed
…you can resolve disputes constructively and safeguard both your business and your peace of mind.
Don’t wait until it’s too late. A proactive legal review of your partnership agreement can prevent future disputes before they start.
