What Causes Partnership Disputes?

Many partnership disputes arise because expectations change after the business is already operating. One partner may feel they are carrying an unfair share of the workload, contributing more financially or taking on greater responsibility than originally anticipated. In other situations, the conflict may involve conduct that directly violates the partnership agreement or breaches of the fiduciary duties owed to the company and fellow partners.

Some disputes between partners are truly personal matters. Differences in personalities or communication styles may result in business tensions that undermine a working relationship. Other times, one partner can clearly point to the other’s specific choices or inaction as a reason for growing resentment or an ongoing dispute. Common allegations that lead to litigation include:

• Refusing to contribute contractually-promised investments or resources
• Disagreements about business decisions or company direction
• Unequal workloads or unmet responsibilities
• Withholding information or failing to communicate about key decisions
• Exclusion from important decision-making 
• Breaching the fiduciary duty to the company 
• Misuse of company funds and resources or self-dealing

Financial issues are among the most common causes of serious partnership disputes. One partner may accuse another of withholding information, diverting business opportunities or using company assets for personal gain. Allegations involving embezzlement or self-dealing can quickly escalate because they undermine trust and may place the entire business at risk.

Disputes may also develop when the partnership agreement contains vague language or fails to clearly address important issues. Even carefully drafted agreements cannot anticipate every future conflict. When disagreements arise about each partner’s obligations, compensation or authority within the business, the terms of the agreement can be central to the outcome of the dispute.

Ideally, partners can discuss their issues privately and resolve matters by negotiating, possibly with the assistance of a mediator. Private discussions usually are preferable to litigation because public conflicts can damage the company’s reputation and cause investors, employees and clients or customers to presume that the business is unstable.   

Sometimes, however, litigation becomes necessary. This is particularly true when one partner simply refuses to comply with their contractual obligations or engages in illegal activity. Depending upon the circumstances, the court may issue injunctions, enforce buy-sell agreements or award damages. An attorney familiar with partnership agreements and business law can help evaluate the situation and determine the most effective strategy moving forward.

The Law Offices of Donald W. Hudspeth, P.C., represents Arizona business owners during conflicts with their partners. Mr. Hudspeth has written a book on these disputes called When Partners Separate and has a detailed understanding of the business and human factors that lead to these disputes. Please call 866-696-2033 or contact us online for an appointment. Our office is in Phoenix.