Why Do Business Partnerships Fail
Entering into business partnership can be a very exciting prospect. However, for a variety of reasons, partners might experience a dispute that cannot be easily resolved. When faced with a partnership dispute, it is important to understand what is and is not expected of you so you know what not to do or say that will cause your partnership to fail.
While no one enters into a business partnership with the intention of failing or winding up in litigation against their partner, it unfortunately happens quite often. While some of the common reasons partnership arrangements fail are personal such as being in differing stages in life, changing or opposing values, and individual motivation and contribution, many reasons are purely financially or business related.
Reasons Why Business Partnerships Fail
Simply put, goal misalignment is a simple but common reason partnerships fail. Before entering into a business partnership, both partners should strategically discuss their goals for the company, including their ultimate goal or “end game.” Even if partners agree on these goals the inception of a business, they can and often do change over time, so the partnership agreement and structure must contemplate how the entity will deal with any and all potential scenarios.
Another common reason is the different levels of risk tolerance between partners. Risk tolerance imbalances between partners can cause tremendous stress on the business and your working relationships with business partners. Running your own business is risky and requires a lot of hands-on work and day-to-day involvement, action, and management. Both partners need to understand the risk tolerance threshold of each other because it will directly affect many crucial business decisions.
Third, disparate performance between partners can often cause partnerships to fail. As is often the case, not all workers work at the same level. When these workers are business partners, this type of performance disparity can create serious tensions to arise. If one partner is performing at a very high level and the other is coasting along, the business and the partnership relationship will suffer.
Perhaps the most unfortunate reason is when distrust destroys a partnership. In order to feel truly secure in a business partnership, each partner must truly trust and feel secure in the competence, ethics, and level of responsibility of the other. For example, if one partner does not feel they can leave the other partner in charge without any oversight, this is extremely problematic.
Managing a Partnership Dispute: 5 things to Prevent Failure
Unfortunately, these potential reasons for partnership failures often manifest later with one or more partners engaging in breach of contract, breach of fiduciary duty, business asset misuse, fraud, and more serious disputes. When these disputes arise, it is important to remember that during a partnership dispute, each partner should make a concerted effort to try and avoid actions that could cause financial losses.
Two Young modern businessmen having discussion in the office
Many partnership disputes become heated and emotionally challenging. It is in everyone’s best interest for emotions to be left out of partnership disputes so the parties involved can work toward the best possible resolution with clear heads focused on the business and not on individual grievances. The number one most important thing you can do, is avoid getting angry and letting emotions take over during a dispute.
Second, do not ignore your partnership agreement. Every partnership is formed by a contract executed with specific terms that each partner agrees to. Before taking any rash action, each partner should make sure they understand exactly what they agreed to when the partnership was formed. Further violating a partnership agreement can and often does constitute breach of contract.
Third, do not violate a non-compete agreement. If one partner believes leaving the partnership is the best course of action, it’s important to follow the guidelines established in any non-compete agreements or the exiting partner could wind being sued for breaching these agreements.
Fourth, do not ignore fiduciary duties. Even if business partners are in the middle of a partnership dispute, there are certain fiduciary duties each still owes to the company and to their fellow business partners. For example, stealing clients away from the business and/or not paying business debts can be considered violations of a fiduciary duty and the violator could be held liable.
And finally, don’t wait to consult with and hire an experienced and proven partnership dispute attorney. Partnership disputes are often complicated matters. In order to ensure each partner does not violate any existing written agreements and to best protect themselves and their business assets, they should consider hiring an attorney to counsel them regarding the business partnership dispute and how to resolve it.
Our experienced business litigation lawyers know that disputes can rattle even the most successful business and need to be resolved quickly to prevent financial losses. The experienced partnership dispute attorneys at Burford Perry understand the intricacies of the duties imposed on business partners and have extensive experience working with both plaintiffs and defendants in complex business disputes. If you are involved in a partnership dispute, the partnership dispute lawyers at Burford Perry can counsel you regarding how to make the best decisions for yourself and your business.
Contact us to learn more about how we can help.