The Most Common Reasons for Partnership Disputes

  • 2024-07-02

Forming a partnership with someone in business or any joint venture can be an excellent way to pool resources, skills and experience. However, partnerships between two or more people can also lead to disputes when things don't go according to plan. Here we look at some of the most common triggers for disputes in partnerships and options to resolve them.

Poor Communication

One of the most common partnership problems is poor communication between the partners. When partners don't communicate properly, it can lead to misunderstandings, incorrect assumptions and partners feeling that decisions are being made without their input.

Good communication is vital in a partnership. Partners should have regular meetings to discuss progress, air any grievances and make joint decisions. Any changes to the partnership agreement or major decisions should be made together. Lack of communication prevents this.

Unequal Contributions

Often partnerships fail when one partner ends up contributing more in terms of time, money, skills, ideas or other resources. The partner making less contribution can breed resentment in the other, who may feel they are being taken advantage of.

Ideally, the contributions of each partner should be laid out clearly in a partnership agreement. This agreement should also detail what should happen if contributions become unequal. Reviewing contributions regularly and communicating openly can help avoid conflict.

Disagreements Over Money

Money is one of the biggest sources of partnership disputes. Disagreements can occur over:

- How profits and losses should be shared

- Reimbursing expenses

- Salaries and fees for partners

- Re-investment in the business

- Withdrawals from the partnership

A partnership agreement can help avoid financial disputes by clearly setting out the capital invested by each partner, the distribution of profits/losses and policies on money matters. Financial transparency between partners is also key.

Differing Vision and Values

Having shared values and a common vision for where you want the partnership to go is important. Major differences of opinion over the direction and objectives of the partnership can lead to disputes further down the line.

Partners should discuss their vision, goals and values openly at the start. Compromises may be needed to allow a partnership with differing outlooks to work. Ongoing discussion and reviewing the partnership's direction together can help avoid future conflict.

Breakdown in Trust and Respect

For a partnership to succeed, there needs to be trust and mutual respect between all partners. When this breaks down, it can destroy effective teamwork. Trust can erode due to poor communication, perceived breaches of partnership agreements, or unethical behaviour.

Rebuilding lost trust between partners takes time and effort. In some cases, the relationship may be damaged beyond repair and ending the partnership is the only viable option. Seeking mediation can sometimes help rebuild trust before things reach an impasse.

Partnering with Friends or Family

Forming a partnership with friends or family might seem like a good idea, but it can come with added complications. Disputes can occur if there is a perception that a partner is not fully committed and relying too much on personal relationships. Mixing friendship with business can get messy if the partnership ends.

Setting professional ground rules and boundaries within a family or friend partnership is vital. A partnership agreement, open communication and separating friendship from business matters can help things run more smoothly. 

Seeking Resolution

If disputes do occur within a partnership, there are options available to seek resolution and prevent matters escalating to a breaking point. Some suggestions include:

- Arranging mediation sessions to openly discuss issues and reach compromises. A professional mediator can sometimes help.

- Reviewing and revising partnership agreements to reflect any new understandings.

- Seeking advice from a qualified member of the legal profession who can provide guidance on dispute resolution based on the specific circumstances.

- As a last resort, commencing legal proceedings to recover losses or dissolve the partnership if agreements have been breached and relationships have irretrievably broken down.

The key is to try and resolve partnership disputes internally where possible and get the relationship back on track. However, sometimes it is impossible to overcome certain differences, and ending the partnership is the only realistic option. Getting professional legal advice can help partners understand their rights and obligations if disputes cannot be resolved.