What Are the Most Common Causes of Partnership Disputes? - Hackstaff, Snow, Atkinson & Griess, LLC

What Are the Most Common Causes of Partnership Disputes?

partnership disputesBusiness partnership disputes often arise for various reasons as partners operate a company together and work together. The problem with conflicts is the strain and potential fracture they can cause in business partner relationships and their risk to the company. 

Some of the most frequent reasons for Colorado partnership disputes arise from: 

Breach of Fiduciary Duty 

Each business partner must act in the best interests of the company. Misappropriating company monies, taking business funds that belong to the business for personal benefit, or taking any action that could hurt the monetary interests of the partnership is a breach of fiduciary duty. If the company suffers, it’s a serious dispute that can sometimes lead to legal actions and maybe the beginning of the end of the dissolution of the business partnership. 

The Use of Resources 

Often, there are conflicts concerning using financial resources for a particular purpose—for instance, purchasing new equipment. A previously written partnership agreement might detail who has authority over the decision or what strategy can be used to make the decision. However, if control isn’t explicitly delegated and business partners must decide together, it could be challenging to settle the conflict if they disagree on resource allocation. 

Authority Disputes 

Without a strong separation of business partner responsibility, frequent conflicts will inevitably arise as both partners attempt to resolve overlapping issues. Using written employment and partnership agreements, all stakeholders should understand their rights and obligations within business operations. 

Workload Distribution 

Some partnerships involve working partners, while others provide the necessary funding. The latter are silent business partners who contributed a monetary investment to get the business off the ground. In other partnerships, business partners will divvy up the work needed, and each will have involvement in operating the company. If any partner believes that the workload is unfairly distributed, it can result in a conflict.  

Violation of Non-Compete Agreements 

Non-compete and non-solicitation provisions in partnership, operating, or shareholder agreements are standard. When a dispute arises, these provisions limit the business partners in terms of what can and can’t be done in competition if one partner leaves the business. 

Disclosure of Confidential Information 

Business information, such as trade secrets or customer information, often needs to be kept confidential to protect a business’s competitive edge. As such, business partnership agreements frequently detail that any info gained or disclosed in the partnership be kept confidential. 

Disclosing confidential information to another party without authorization, whether intentionally or otherwise, could compromise the business, resulting in a business partnership dispute. 

Breach of Contract/Failure to Perform 

Business partnerships include the objectives of the partnership and the rights and responsibilities of each party. If one party fails to adhere to its obligations or to grant certain rights, a breach of the agreement occurs. 

Hire a Business Attorney for Help 

It is crucial to hire a business attorney to draft your partnership agreement at the outset. You might also need your business litigation lawyer if you need to enforce that contract in a viable dispute in the future. At Hackstaff, Snow, Atkinson, and Griess, we can help you identify ways to evade conflicts that could hurt your business. If you are involved in a dispute, we can help you pursue a resolution. Contact us today to learn more.