A partnership agreement is a binding document that plays a central role in helping business partners maintain a productive relationship. While disagreements can happen in any partnership, a well-structured partnership agreement can serve as a roadmap for resolving disputes without the need for costly and time-consuming legal proceedings.
Simply having a partnership agreement is not a magical solution, though. You and your partners should understand how exactly this legal document can resolve or even prevent a business dispute.
Clear roles and responsibilities
The first step in preventing disputes is to outline the roles and responsibilities of each partner. A partnership agreement clearly defines each partner’s contributions to the business.
Partners often have differing opinions when it comes to making important decisions for the business. A partnership agreement can establish a framework for decision-making, including voting procedures, quorum requirements and dispute-resolution mechanisms. When disagreements arise, partners can turn to these predetermined rules to reach a fair and efficient resolution.
One of the most contentious issues in any partnership is the exit of a partner. Partnership agreements can include provisions that specify the process for a partner’s departure. This reduces disputes by establishing a clear path for partners to follow when they decide to leave the business.
Dispute resolution mechanisms
Despite all precautions, disputes can still occur. A well-drafted partnership agreement can include a section dedicated to dispute resolution. This section may also provide mechanisms for mediation or arbitration.
Tax statistics from the IRS show that there were 4,280,690 registered partnerships in the United States in 2020. In an ideal world, there would be an equal number of ironclad partnership agreements that can nip most impending disputes in the bud.