Many people go into business with their partner feeling very positive and upbeat. Partners are in complete agreement and believe they have a shared vision of what their business will be like. It may take several years or even just a few days before disputes begin to arise about how the business should be run, how work should be divided, how profit should be shared, or who owns what ideas, equipment, and fixtures. Once these business disputes arise, they can be very hard to resolve. Here are some tips for resolving disputes with business partners.
Stop Trouble before It Starts
The fact that you’re looking at this article means this may very well be like telling you to shut the barn door now that the horse is cavorting in the fields, but on the off chance you are thinking ahead and reading this article when you are starting your partnership, here are some tips for eliminating many business disputes before they start. Understand that nothing is understood, and write everything into the business plan and partnership contract. Plan the division of labor, profit sharing, and ownership of intellectual, real, and other properties. Make sure your business plan clearly discusses where you envision the business being one, five, even 10 years down the road. Even if you think you have an agreement, write it down. The less that is understood, the less risk there is for misunderstanding. Next, anticipate disputes. Even with the best business plan, the best people, and an otherwise successful business, disputes will arise. Build dispute resolution into your contract, starting with relatively informal ways of keeping the lines of communication open so that you can talk out minor conflicts before they escalate. Next, specify a procedure for resolving more serious conflicts, up to and including the need to dissolve the partnership. It is often advisable to use alternative dispute resolution methods like mediation and arbitration.
Non-binding Mediation, a Tool to Help You Work Together
If you cannot resolve a particular dispute with your partner or partners, but are otherwise happy working together, mediation can be a very useful tool. Mediation is an informal gathering involving you, your partner, and a mediator. Non-binding mediation is a good first step for conflict resolution, because it lets everyone talk out their issues and hear the opinion of an objective third party, without the threat of a settlement being imposed. It can often diffuse conflict and facilitate future conflict resolution.
Binding Mediation and Arbitration
Mediation has one problem that is really the flipside of its advantage: it doesn’t guarantee a resolution. If you know going into mediation that you are unlikely to come to a resolution, you might opt for binding mediation, in which a mediator works with all parties to find a mutually agreeable solution, but at the end of the day has the power to impose a compromise. Arbitration is a different proceeding. It is similar to a court proceeding in which both sides present evidence and then a judgment is determined. The difference is that an arbitrator or arbitration board is selected by the parties in dispute, rather than being an officer of the court. Whereas mediation leads to a compromise, arbitration settlements can often be more one-sided. As a result, arbitration, like a lawsuit, can lead to continued conflict and hard feelings and damage a future working relationship. Arbitration is often a tool for partners who do not expect to be working together much longer.
Filing a Lawsuit
If you cannot resolve a conflict with a partner and your contract does not specify a form of alternative dispute resolution, like mediation or arbitration, you can file a lawsuit against your partner. In most cases, this will lead to a highly antagonistic situation, and is often only appropriate when a partnership is to be dissolved. A lawsuit may also lead to additional expense, a long time before resolution, and significant uncertainty among parties, but sometimes it is necessary. A lawsuit is the only way to compel a resolution with a resistant partner if your contract does not specify mediation or arbitration.