Common Causes of Partnership Disputes

Partnerships are a common business structure in California and the United States in general. A partnership is when two or more people come together to run a business as co-owners. Owning a partnership comes with several benefits. For instance, partnerships allow for shared responsibilities, decision-making, and resources. However, while partnerships offer several advantages, the truth is that when two or more people work together, there is a high potential for disputes. If you are considering getting into a partnership or are already in a partnership, it is crucial that you understand the leading causes of partnership disputes. By understanding the causes of partnership disputes, you can take proactive measures to prevent conflicts from arising in the first place. Below, we discuss some of the common causes of partnership disputes;

When parties to a partnership do not share a common vision for the business, it can result in conflicts. For example, when partners have different visions, it can result in disputes over how resources should be allocated within the business. Misaligned visions can complicate the decision-making process. Partners who do not share the same vision may find reaching a consensus on crucial decisions challenging, leading to frustration, delays, and potential disagreements.

There are two types of partnerships in California. They are general and limited partnerships. In a general partnership, two or more general partners hold equal rights and responsibilities in the business management. On the other hand, in a limited partnership, there is at least one general partner and limited partner(s). While general partners own and manage the business, limited partners only serve as investors. In a general partnership, disputes can arise if partners believe the workload is not distributed fairly.

Another common cause of partnership disputes is poor communication. When partners fail to communicate openly and honestly about, among other things, financial matters, and roles and responsibilities, it can lead to misunderstandings, which can then result in disputes.

When it comes to money matters, several factors can cause problems, including;

• Disputes over the division of profits
• Decisions regarding how much each partner should receive as salary
• Decisions about how much money should be reinvested into the business

To avoid financial disagreements, partners should establish clear financial agreements. Partners should create a plan that accounts for how profits will be divided, how money will be reinvested, how much partners’ salaries will be, and every other money-related matter. This plan should be reviewed and updated regularly to prevent conflicts.

The lack of a well-defined partnership agreement can lead to disagreements among business partners. For example, without an agreement, it may be unclear what the roles and responsibilities of each partner are. Also, the absence of an agreement can result in disputes over financial matters, such as expense allocation and profit distribution.

Finally, if a partner does not respect the boundaries between work and personal life, overextending into a partner’s life or bringing their personal problems to work can lead to problems.

If you are involved in a partnership dispute, you need a skilled and trusted attorney to help you protect your interests. Contact SAC Attorneys LLP to schedule a consultation with one of our experienced Silicon Valley business lawyers.