Key Methods of Resolving Partnership Disputes

A business partnership begins among people who share a vision, but as the business developments, disagreements are inevitable. Disputes can arise over a host of issues, such as business direction, management, compensation, ownership and alleged misconduct. When differences of opinion turn into full-blown disputes, the future of the partnership and even the business itself can hang in the balance. 

Business owners need to be resilient in taking action to resolve disputes efficiently while preserving their financial interests. The ideal approach depends on the totality of the circumstances, including the severity of the disagreement, the desire to preserve the business and the willingness of partners to collaborate. The following are paths that may be considered in coming to terms in inter-partner disagreements:

• Mediation — A neutral third-party mediator can facilitate healthy dialogue and focus on collaborative problem-solving. This can help partners identify underlying issues, overcome negative communication patterns and define goals and responsibilities. This cost-effective method empowers partners to craft a mutually agreeable resolution, strengthening their ongoing collaboration.
• Buy-out — If continuing together as partners proves impossible, but preserving the business remains a shared priority, a buy-out offers a solution. With a pre-existing buy-sell agreement, the process follows an outlined procedures. Otherwise, an accurate valuation of the company becomes the first step, followed by negotiations. 
• Sell out to new owners — When none of the partners wish to remain involved with the business, selling the enterprise may be necessary. Potential buyers could be employees, competitors or prospects found through business brokers. Again, an accurate valuation is essential for a smooth transaction.
• Freeze-out merger — In unequal partnerships, majority owners can use a freeze out to acquire minority shares. This forces minority owners from the partnership but ensures they receive fair market value for their interests. 
• Dissolution — When salvaging the business appears futile, dissolving the partnership may be the only recourse. The process involves drafting workouts, settling debts, liquidating assets and distributing proceeds. Judicial intervention might be necessary if amicable agreement proves impossible.
• Bankruptcy — Partnership disputes are often fueled by financial distress. Insolvent businesses facing mounting debt might find their best option is bankruptcy. Restructuring debt and continuing operations might be possible, but sometimes full liquidation is the only viable path. 
• Litigation — Misconduct like breaches of fiduciary duties, asset misappropriation or fraud can trigger lawsuits between partners. Legal action can bring financial compensation for aggrieved parties, but it should be carefully considered due to the significant costs involved.

By understanding the available options and seeking professional legal guidance where necessary, partners can deal effectively with dispute resolution and emerge with the best possible outcome for themselves and their enterprise.

If you’re going through a conflict with one or more of your fellow owners in your Arizona business, the Law Offices of Donald W. Hudspeth P.C. in Phoenix can protect your rights and work to achieve your objectives. To schedule a consultation, call 866-696-2033 or contact us online.