Most entrepreneurs have entered into a business partnership at one time or another, or at least entertained the idea. Sadly, despite the best of intentions on all sides, these arrangements often fail.
Common pitfalls of entering into a partnership
Some of the factors that make it difficult for a business partnership to succeed include:
- Failure To Form An Entity Or Have A Written Agreement. When entering into a business venture with another person, it is critical to complete the legal work and establish the basis upon which you will do business. This may entail forming a corporation or limited liability company (LLC) or some other kind of entity. Whichever basis you choose for the venture, it is critical that the rights and duties of the owners are clearly delineated and understood, which can be outlined in the bylaws or LLC operating agreement. Taking this step is perhaps the single best way to avoid disputes once you are actually conducting business.
- Divergent Goals: The slightest difference in goals at the beginning of a partnership will only widen throughout the development of the business. It is crucial to make sure your goals are tightly aligned with those of your business partners before going too far. Consider various proposals, such as what your plan will be if your business faces litigation, or how you will respond if an offer is made to buy out the business. If you discuss these topics with your partners, would your plans and goals for the business still be the same? Exploring these possibilities early on will limit the chances of costly disputes in the future.
- Workload Concerns: Does this sound familiar? You have put an extreme amount of work into the partnership while your business partner seems to be doing very little. Perhaps your partner is thinking the same thing about you, or maybe your partner believes that their ideas are worth more so you should be doing more of the leg work. These disagreements are common but difficult to overcome. By establishing clear and specific roles and responsibilities at the start and putting them in writing, you can avoid these conflicts and the hard feelings that often accompany them.
- Quarreling Over Straws: When bad blood simmers between business partners, even the most insignificant disagreement can escalate into a battle of wills. Hamlet urges to “find quarrel in a straw when honor’s at the stake,” but he never had to meet payroll or comply with complex business regulations. Petty disputes are draining and time-consuming and ultimately lead to bad decisions. In short, they are bad for business and should be avoided at all costs.
If you are currently engaged in a partnership dispute, it may seem like you have few options available to you. Whether you’re leaning toward parting ways, toughing it out or exploring potential legal options, an experienced business litigation attorney can help you understand and maximize the strength of your position.