Business partnerships can be powerful engines for growth and innovation, but they’re not immune to conflict. Fortunately, a legal framework exists for resolving these disputes when they arise. Whether you’re currently facing a partnership conflict or want to be prepared for potential future issues, knowing your options can help you make smart plans for the future—something that every business owner knows is integral for success.
Let’s explore the various methods and legal pathways for addressing partnership disputes, from collaborative approaches to more adversarial legal proceedings.
Understanding Partnership Agreements
Reviewing the partnership agreement is the first step in resolving any partnership dispute. This document should outline procedures for addressing conflicts and making decisions, which can save significant time and resources by providing a clear roadmap for resolution.
Key elements to look for in your partnership agreement include:
- Dispute resolution clauses
- Buy-sell provisions
- Roles and responsibilities of each partner
- Profit and loss allocations
- Decision-making protocols
These elements should indicate how you and your partner(s) have agreed to handle disputes if they arise. New York partnership law might apply if your agreement is missing any of these elements. An attorney can help you review your partnership agreement, identify provisions that apply to your current situation, and determine the ideal path forward.
Mediation: A Collaborative Approach
Mediation is often the first step in resolving partnership disputes. This process involves a neutral third party who facilitates discussion and negotiation between partners. Mediation is typically faster and more cost effective than litigation. It’s also confidential, less formal, and more flexible than litigation, which means partners retain more privacy and control over the outcome.
Many partnership agreements require parties to attempt mediation before pursuing other legal avenues. Even without this requirement, mediation can be a valuable tool for preserving business relationships and finding mutually beneficial solutions.
Arbitration: A Private Alternative to Court
If mediation is unsuccessful or unsuitable for your situation, arbitration could be the next step. Arbitration is a more formal dispute resolution process in which an arbitrator or panel of arbitrators hears evidence and makes a binding decision.
Like mediation, arbitration typically provides greater privacy, flexibility, and cost savings than a trial. It’s also usually much faster than litigation. Many partnership agreements include mandatory arbitration clauses. It’s important to review these clauses carefully, as they can significantly impact your options for dispute resolution.
Litigation: When Court Intervention Is Necessary
Sometimes, litigation is necessary in partnership dispute cases. Litigation involves taking legal action to resolve conflicts that partners cannot settle out of court. It typically involves a formal lawsuit where a judge or jury makes a binding decision on the issues at hand. This might be necessary if one or more of the following issues arise:
- Breach of fiduciary duties
- Misappropriation of partnership assets
- Disagreements over the distribution of profits or losses
- Unauthorized actions by one partner that affect the partnership
- Disputes over the interpretation of the partnership agreement
- A deadlock between partners with equal ownership
- Disputes related to the dissolution of the partnership
- Allegations of fraud or misconduct by a partner
- Disputes over the valuation of partnership interests
- Breach of non-compete or confidentiality clauses within the partnership agreement
Partnership Dissolution: A Last Resort
Partnership dissolution might be necessary if the relationship between partners becomes irreparably strained, making it impossible to continue the business effectively. This can occur due to ongoing disputes over management decisions, breaches of the partnership agreement, financial mismanagement, or a significant breakdown in trust.
Dissolution might be the only viable option if one partner wishes to exit the business or the partnership has fulfilled its purpose and is no longer necessary. The dissolution process legally ends the partnership, allowing the partners to settle their affairs and distribute any remaining assets according to the terms of their agreement. Dissolution can be voluntary or court-ordered.
Legal Counsel for Partnership Disputes
If you’re facing a partnership dispute in New York, don’t hesitate to seek experienced legal counsel. At Levy Goldenberg LLP, we’re committed to providing the fierce advocacy and practical solutions you need to move forward. Contact us today to learn how we can help.