Dear Entrepreneur,
Disputes are sometimes unavoidable in a Partnership and in some cases these conflicts may linger and ultimately the relationship suffers a breakdown. It is therefore important to know what to do if you find yourself in this situation and in this article we will examine the various circumstances in which conflict can occur, the effects of the conflicts on the partnership structure and some steps to take to move on from a failed partnership.
WHY PARTNERSHIP FAILS
It is crucial to keep in mind that there are various situations in which conflict may arise in a partnership. Some examples include:
Financial Issues: This a leading cause of partnership conflicts and typically occurs when the business is under financial strain or where the partnership agreement is unclear about how liabilities will be managed and earnings will be divided.
Inappropriate Behavior: This is another significant point of disagreement and may include behavior like mismanagement of funds, using the name of the partnership to secure illegal contracts etc. This breach of trust could lead to conflict and it in turn lead to dissolution of the partnership.
Inadequate Decision-Making Process: Sometimes issues may arise from differing opinion about decisions that need to be made by the business. It may be challenging to reconcile differing stances on issues relating to finances, employment, operational framework etc.
Disparity In Values: Differences between Partners may stem from their distinct values. There is always an issue when Partners disagree on the values that are important to them.
Interference: When one or more business partners cross the line between work and personal life—either by bringing personal issues to work or seeking to intrude too far into a partner’s personal life—it can be problematic for the partnership.
HOW TO PREVENT FAILED PARTNERSHIP
In accordance with the adage that says prevention is preferable to cure, it is wise to avoid failed partnerships by continually looking for strategies to resolve conflicts as they arise. A few strategies for avoiding a failed partnership are as follows:
Choosing the right partner: This lies at the crux of the whole matter. Ensure that you choose a business partner that has the requisite credentials, experience and values that you need. Be clear that your partner understands your objectives and is willing to achieve them.
Partnership Agreement: From the point of establishing the partnership, it is advisable to draft and sign a partnership agreement that provides for means of resolving conflict amongst partners. The partnership agreement should also state out the operational framework of the firm, roles of the partners, contributions etc. It is important that all Partners understand and are comfortable with the terms of the agreement.
Communication: Conflicts are inevitable, so the best thing partners can do even when they are at odds is to communicate politely and concentrate on resolving whatever issue the partnership firm is facing. Raising voices and using derogatory terms is not necessary and could even exacerbate the conflict. Each partner should be able to communicate without being made to feel less intelligent.
Respecting Boundaries: The likelihood of issues developing in a working relationship is decreased when both parties respect one another’s personal limits.
Consider ADR: Partners could adopt any form of alternative dispute resolution such as negotiation and mediation that are not so complicated to help in reaching a compromise. The use of this method involves a neutral third party to help solve the crisis.
WHAT TO DO WHEN YOUR PARTNERSHIP FAILS
If you have tried any or all of the above to manage your conflicts without success, then you may need to consider taking the following steps:
- Communicate with your partner: Have a discussion with your partner on the current state of the business. It is important to let your partner know your suggestions on the way out of the issue. It is sometimes better to communicate in writing which can help avoid unnecessary confrontations.
- Make a plan for dissolution: To avoid future legal repercussions, be sure this is done appropriately. Review your partnership agreement and pay attention to the provisions describing how the partnership will be dissolved and how it will happen.
- Divide up assets and liabilities: Assess all assets and liabilities of the business. Settle any outstanding debts and then distribute the assets.
- Cancel any joint contracts: Take necessary steps to remove yourself from any ongoing contract. It might also be important inform your customers and suppliers.
- Update Your Company Registration & Branding: You will need to update the changes in your business with the relevant regulatory agencies. It may also be necessary to change your business name and branding.
PARTING THOUGHTS
Dissolution should be a last resort to partners when conflict occurs as each person should be open to solving the partnership disputes. The first thing to do if you find yourself in a scenario where a disagreement cannot be avoided is to try to restore the relationship which may involve communicating openly and honestly about the issues, compromising, or seeking professional help. If the partnership cannot be saved, then you will need to prepare for dissolution which may involve negotiating a buy-out, drafting a new partnership agreement, or going to court. Finally it is important to learn from your mistakes by identifying what went wrong in order to avoid same in your future business ventures.
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