In the world of business, great partnerships are a story that no one tires of hearing. Whether it’s two longtime friends who had a great idea or two strangers who found one another while trying to solve the same problem, business partnerships are almost a romantic idea.
Unfortunately, they often end the way that many romances do – on bad terms and with both sides losing significant amounts of money. Litigated partnership disputes are a big financial drain on a business. But can they be avoided? And if so, how?
This was the subject of an archived article on the Forbes website. According to the author, partnership disputes often arise due to “misaligned philosophies” between two co-founders or between co-founders and new hires. Although “philosophy” seems like a lofty term for the business world, we all have one. At the very least, we each have ideas about what a business should be and how it should operate. If partners and other shareholders never take the time to discuss these philosophies in an honest and open manner, tensions will likely rise sooner or later.
The solution, according to the author, is to put in the necessary time, money and work to come up with a well-written operating agreement. By working on one together, you and other stakeholders will be required to have difficult conversations and face a lot of hypothetical worst-case scenarios. By addressing them head-on and in writing, you are much better equipped to deal with problems when they inevitably arise.
As you create your operating agreement, consider hiring an attorney to help you draft and review it. Investing perhaps a few hundred dollars now (to hire an attorney) is far more cost effective than defending yourself in litigation later on.
No one wants to bring down the excitement of a budding business by discussing what could go wrong. But having these conversations with a partner could prevent a costly dispute in the future. And if litigation does ever become necessary, having an operating agreement in place will leave you in a much better position to contest the claims in court.