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Philadelphia Business Lawyer Sarah E. Holmes
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How to Handle Critical Developments in Your Business Partnership

2/22/2022

 
Imagine this scenario: your business partnership is off to a great start. You and your partner get along and work well together. Your vision is aligned and you've knocked a few business goals out of the park already. And then one of you falls ill, or your partner has to move away, or another company offers to buy you out. What do you do?

We all know what happens to best-laid plans. Sometimes reality doesn’t work out as imagined, no matter how strong your vision and will. Nobody goes into a business partnership expecting it to go badly – hopefully, you’re excited and optimistic about your venture.

While you can’t anticipate everything that could possibly go wrong, you can cover the most common contingencies with a little bit of planning. Thinking about worst-case scenarios isn’t pleasant but it can actually save your business partnership in case of any unexpected turns.

You can start planning for the unexpected in your business partnership agreement. But even if you don’t prepare for the unexpected ahead of time, you can successfully work through many of these situations with a partnership agreement modification.

Depending on how well you and your business partner communicate, you could move forward with a partnership modification through mediation with a neutral third party or negotiation where you and your partner are each represented by legal counsel.

Creating a strong foundation in your partnership agreement will help you weather any storms that come your way. It’s important to get a personalized approach to your partnership since no two businesses face the same issues and risks. This is why templates often don’t work. A business attorney can look out for you and help protect you from these curveballs.

Handling Critical Partnership Developments
A business partnership is first and foremost a human endeavor. Business partners often act as driving forces, pouring their passion, efforts, capital, and time into the venture.

So when a partner’s circumstances change, that can dramatically affect your business. A strong partnership agreement will act as a guide for how to handle these situations.

In the absence of guidance from your partnership agreement, you and your business partner can sit down to negotiate new terms for how to move forward. Partners must be in unanimous agreement when making changes to the terms of their partnership.
  • If a business partner gets sick or moves away, they may not be able to contribute to your partnership the same way that they have up to that point. A managing partner may become unable to carry out the day-to-day management of business operations. You may have to find another business partner or step up your own efforts to keep up. If the partner had a lot of authority and decision-making power before, they may be better off playing a more minor role as a limited partner moving forward.
In many partnerships, profit distribution is based on each partner’s contribution to the venture. So when that contribution changes, you’ll want to change the way profits are divided as well.
  • A business partner may pass away or decide to withdraw from the partnership for whatever reason. Your partnership agreement should outline the procedures you’ll take in these circumstances. How much notice does a partner have to give before voluntarily withdrawing from the partnership? Do the remaining partners get a right of first refusal to buy the withdrawing partner’s share of the company? Will the partnership dissolve if a partner leaves or passes away? If so, what will happen to the business and its assets?
Similar complications may arise when your business partner is another company. Planning ahead of time can save you a lot of grief in these situations.
  • A business may run into production or supply chain issues. Nowadays the economy is more volatile than ever. What happens if a partner is unable to deliver on the terms of the partnership? Does the partnership dissolve? Can the partnership find another partner or supplier? What would this process look like? 
  • What happens if a business partner goes bankrupt? This will affect your joint assets and debts, especially if the partner is a general partner. It’s absolutely critical that you properly strategize the structure of your partnership in your initial agreement. If your partner’s assets get frozen, that could affect the operation of your business.
  • What about bringing on new partners? You can plan ahead for when your business grows and expands by specifying how new partners would be onboarded in the future. After all, as your operation grows, it’s common to need greater resources.
Ideally, you and your business partners are on good enough terms to sit across from each other in a mediation or negotiation. But in some cases, communication between partners could break down. This could happen over time or after a single inciting incident.

If you’re unable to come to a unanimous agreement to amend your partnership, you may have to halt operations, dissolve the partnership, and litigate the division of assets and debts.

How to Handle Sales Offers for Your Partnership

A business partnership could be sold in full with the unanimous consent of all partners or in part, where a single partner sells only their share of the partnership.

Again, it helps to anticipate the sales process in your partnership agreement before any offers come in. By following your previously agreed-upon terms, you and your partners have a solid idea of what to expect. This can help the sales process go much more smoothly.
When presented with a sales offer for your business, you must usually meet with all the partners in order to vote on how to proceed. The rules around this process will change based on your partnership terms and which state laws apply. So a Pennsylvania business sale will operate under different rules compared to New Jersey or Delaware.

You will have to decide which assets will be sold and how debts will be handled in the sale. In addition, you will have to consult with a business advisor and appraiser to get an accurate idea of how much your operation is worth. Your business lawyer can help by referring you to the appropriate experts, negotiating for you, and protecting your interests in the sale.

Call the Philadelphia offices of Holmes Business Law now at 215-482-0285 or use our online contact form to get started on your partnership modification or sale.

How to Manage Business Partners and Resolve Partnership Disputes

2/3/2022

 
No matter how well matched you are with your business partner, disagreements and conflicts are inevitable. But conflict does not have to derail your partnership.
By preparing and setting up conflict resolution tools ahead of time, you and your partners can better weather the storms that come with the wild ride that is business ownership.

It's great when business partners share the same values and have a track record of working well together. But circumstances change all the time, especially in a COVID-19 world – which can put pressure on even the strongest business relationship. Or you and your partner may be working together for the first time, still figuring out each other’s communication styles.

Either way, you can take certain steps to better position your partnership for success.

How Do You Avoid Partnership Disputes?Not all conflicts are inevitable. Some can be avoided with the right planning and foresight.
By minimizing avoidable conflicts, your business partnership can operate smoothly with fewer bumps, especially when you’re first getting started. The conflict resolution frameworks you put into place early on could end up saving your joint venture down the line.

Give Clear Decision-Making PowerIf you plan to enter into an equal partnership with one other partner, you might figure that a 50-50 split of decision-making power makes the most sense.
But a 50-50 split between two partners sets you up for a potential gridlock – a 1-vs-1 stalemate when you disagree. If you both refuse to compromise, your partnership may be unable to move forward in any way and you may have to dissolve your venture.

To avoid this stalemate, you should decide early on who will get ultimate decision-making power in the case of a disagreement. This could mean that you choose a 51-49 split between partners instead. Or you could choose a “designated decider” third party to break any stalemates – this could be a trusted business attorney or another stakeholder in the company. 

Create a Robust Partnership Operating AgreementYour partnership operating agreement is the single most important document when it comes to setting up your business for success. You may be excited to get started on your partnership and hit the ground running, but taking the time to properly consider and establish your partnership terms first could save you untold headaches down the road.
Some of the most important terms in your partnership agreement involve:

  • Establishing the purpose of your partnership. What products or services will you be selling? What actions will you need to take to make your vision come true?
  • Deciding what governing law will apply. In the case of a dispute, which state laws should determine the outcome? Which courts would you prefer to hear your case?
  • Detailing each partner’s ownership, responsibilities, decision-making authority, and partnership contributions, such as capital, expertise, assets, or time.
  • Determining how profits and losses will be divided among partners. Make sure everyone is on the same page when it comes to what they’ll be earning and what liabilities they can expect to take on for the partnership.

Managing expectations is key when it comes to minimizing unnecessary conflict. Your partnership agreement should reflect your vision and keep your venture on track.
You could also include a mission or values statement along with your partnership agreement, where you set out the culture, growth philosophy, and commitments of your venture.

Meet Your Partner(s) in the MiddleEvery partnership is unique. Consider how you and your partner complement each other. Cater to each partner’s strengths whenever possible and recognize your weaknesses.
Transparency is critical when it comes to the success of your partnership. You and your business partners must be able to communicate honestly and effectively with one another.
Problems often arise when communication breaks down, so one solution could be to schedule a regular meeting where partners can freely communicate their concerns. You could even detail a mediation plan in your operating agreement that gives you a path forward when conflicts arise.
Bring a Professional Into the RelationshipDespite the professional nature of business, partnerships can get extremely personal. Bringing in an objective third party such as a business attorney can be a game-changing source of support, helping partners anticipate and resolve difficult issues before they become problems.

When you’re in the thick of starting your business partnership, the bigger picture is often hard to see. A business lawyer can help you focus on your goals with effective strategies catered to your partnership’s unique needs. An objective professional can also make sure each partner’s needs and expectations are met when they might otherwise get overlooked.

How Do Business Partners Resolve Conflict?Conflict does not have to tear apart your partnership. The strongest partnerships aren’t free of all conflict – rather, they can successfully work through conflict to keep moving forward.
Address Disputes Early OnWhen needs don’t get addressed, they can fester into resentment. Have a conflict resolution procedure in place to help partners bring up any issues before they get worse. Hopefully, you and your partners have a regular meeting where you check in with each other. If you don’t, you should bring up any issues with your business partners as soon as they arise.
This is where a third-party professional can really help grease the wheels of communication. 
Partnership MediationMediation involves bringing in a neutral third party who acts as an intermediary between two disputing partners. Business mediators are trained in communication, negotiation, and conflict-resolution techniques. Mediation is a great alternative to litigation – going to court to resolve a partnership dispute can get complicated and expensive.
When you choose mediation over litigation, you and your partner negotiate the resolution instead of a judge deciding the outcome of your dispute.
Business partnership disputes are bound to happen. When they do, you should keep your partnership’s ultimate goals in mind. Ideally, you and your partner can come to a resolution amicably and effectively. The more prepared you are for the possibility of a dispute, the better chance you’ll have at resolving the issue and continuing your venture’s growth.
Call the Philadelphia area offices of Holmes Business Law now at 215-482-0285 or use our contact form to prepare your partnership for success.

    Author

    Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way.  When you're looking for a business lawyer in Philadelphia, the Main Line or New Jersey, we can help.

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Holmes Business Law, P.C.

​1515 Market Street, Suite 1200,
Philadelphia, PA 19102

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4th Floor, Ardmore, PA 19003
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​© 2022 by Holmes Business Law P.C.
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This website and its content herein constitutes attorney advertising.  Any content on this website should be construed as informational, not legal advice.  No information on this website is intended to create an attorney-client relationship.  Only a signed fee agreement between Sarah E. Holmes and the client will establish an attorney-client relationship.  Use of any information on this site is provided "AS IS" with no warranty of any kind, either express or implied.  Always consult with a licensed attorney in your own state for legal advice.
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  • Home
  • Attorneys & Areas of Law
    • Business Entities >
      • Corporations
      • Limited Liability Company (LLC)
    • Business Purchase or Sale
    • Raising Capital & Investor Agreements >
      • Promissory Notes and Debt Financing
      • Private Placement and Equity Financing
    • Business Contracts >
      • Consulting Agreement
      • Employment Contracts
      • Independent Contractor (1099) Agreements
      • Website Terms and Privacy Policies
    • Copyright & Trademark
    • Hiring Employees/NDA/Non Compete
    • Succession Planning
    • Commercial Lease
    • The Right Start Program
  • About
    • Speaking and Events
    • Webinars
    • Client Testimonials
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    • Contact
  • Business Success Tips
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