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 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.
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:
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.
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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