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What To Do When Business Relationships Go South

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by John Wood, Attorney at Grant Park Advisors LLC

Even though business partnerships are almost always started with the best of intentions, they sometimes end up going South. While many of these partnerships thrive without serious conflict, studies show that up to 70% of business partnerships eventually fail.

There are several advantages to entering into a partnership, even given the worrisome odds of eventual failure. Partners can help take some of the workload, bring a new perspective to the table, or bolster your business with additional skills, but they also require patience, tact, and a willingness to compromise.

The reasons for a partnership’s failure can vary, from personality clashes to arguments over money. Whatever the reason for the end of the business relationship, partners can be prepared by pre-planning. Much like a prenuptial agreement in a marriage, pre-planning for the end of a business relationship can help both partners make a clean break without monumental losses.

No one wants to plan for a partnership to end and very few people hope to need an attorney to sort out the end of a business relationship. However, a skilled attorney can help business partners end their relationship in the most positive way possible — and perhaps even salvage the personal relationship along the way.

Avoiding pitfalls

Many pitfalls can plague a business relationship, signaling that the honeymoon is truly over and it may be better to part ways. Disagreements between partners are to be expected, but sometimes the in-fighting can escalate to a point where the partners cannot even speak to one another without it escalating. Financial matters are often a point of contention, especially if one partner has more “skin in the game” than the other and feels as if they deserve more of a say in the direction of the organization.

People may feel that if they go into business with a friend or family member, they can avoid the typical pitfalls of partnerships. After all, they know these people intimately and could not imagine business coming between them, but family and friend relationships can become just as acrimonious in a business arrangement.

Whatever the reason for the relationship turning sour, the end can be difficult for everyone involved due to the hurt feelings, monetary losses, and shattered expectations they must contend with. By enlisting the help of a trusted advisor or attorney, it’s possible to salvage a relationship and bring the professional partnership to an end amicably.

Negotiation and dispute resolution

Sometimes, disputes don’t need to signal the end of the partnership. Mediation and dispute resolution can be tools to help partners weather business issues and come out on the other side. Attorneys can help with contract disputes, breaches, and in-fighting.

Within dispute resolution, a neutral third party — often an attorney or mediator — will meet with the partners to help them work through the conflict. This conflict resolution helps partners negotiate terms together, assuring that both parties are heard and that their needs within the partnership are met. Sometimes this can mean creating new contracts, revising old contracts, or ending the partnership completely.

Dissolving the partnership

If the decision is made to dissolve a business partnership, it’s generally a good idea to have an attorney involved. Partnership dissolution can lead to tax implications, contract disputes, debt, and a massive amount of paperwork, and the laws concerning how to dissolve a partnership can vary from state to state. A legal advisor can help walk one through this complex labyrinth of laws and paperwork, ensuring everything is done legally.

Attorneys have a duty to act in good faith and to follow the letter of the law concerning the dissolving of partnerships. The business partners should also have an interest in acting in good faith and in the best interest of the venture, but if a dissolved partnership is particularly acrimonious, this can be a difficult endeavor. A partner who believes themselves to be in the right, but who fails to act in the best interest of the venture, could be at a significant disadvantage if the issue ends up before a judge.

Division of assets

Much like a divorce, the dissolution of a partnership involves the division of assets. Each partner should have equal access to business files and records to ensure any mutual property is divided fairly.

Business records can be used as evidence of one partner not upholding their end of the partnership contract, which is why it’s integral to the dissolution that both parties be given equal access to all records. With an attorney involved, records can be analyzed to help pinpoint where one (or both) partners may have gone wrong in the running of the business — if that is up for dispute — so the division of assets can proceed fairly.

Experienced attorneys can bring business partnerships to amicable ends, keeping in mind the end goals and incentives of everyone involved in the partnership. Long-term goals and strategies to help reach those goals should be part of any dissolution plan. Though the end of a business partnership can be difficult to withstand, having a skilled attorney as a guide through the process can make the end a little easier and advantageous for both parties.

 

john wood

John Wood founded Grant Park Legal Advisors LLC, a Chicago-based firm specializing in probate, estate planning, and business law. His diverse background includes real estate, academic achievements, and wealth management. 


 

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