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4 ways to avoid a legal dispute with your business partner

Starting any business can be challenging without some help. After all, if you choose to go it alone, you may need to come up with a product, financing, staffing and equipment on your own. While there are usually no easy ways to begin a business venture, you can likely simplify your startup by going into business with a partner or group of partners.

As with any group, problems may arise with your business associates. Even though you likely cannot proactively avoid all possible disputes, you can take these four steps to reduce the odds of winding up in a bitter legal argument with those in your partnership.

1. Choose the right partners

To make money in business, you must think of effective ways to meet customer demands. Once you decide a partnership is the best model for your venture, you need to be sure you are working with the right partners. While your best friend may make a great companion, he or she may not have business talents. Accordingly, before you decide to form a partnership, you must evaluate the pros and cons of potential partners.

2. Draft an air-tight partnership agreement

When you have a well-written contract, you can rely on the text of the document to direct your business operations. If there is ambiguity, however, you may have needless disagreements with your business partners. While all partnership agreements are unique in certain ways, most address the following: 

  •         Control
  •         Duties
  •         Capitalization
  •         Compensation
  •         Decision making
  •         Conflict resolution
  •         Dissolution 

While it is possible to modify a partnership agreement after you execute it, the best time to negotiate terms is usually during the formation of the partnership. Using the time before you create a partnership to draft the agreement, recommend changes and seek legal counsel may reduce future disagreements. 

3. Talk to your partners 

If communication between you and your business partners breaks down, animosity may build. Still, both you and your partners must focus on running the business. If you attempt to discuss complicated problems during the business day, you may not give the problem the attention it deserves. Therefore, try to set aside sufficient time to address partnership issues. Also, keep lines of communication open to better manage gridlock. 

4. Consider mediation 

While you may have the legal right to take your dispute to a courtroom, adversarial hearings can foster animosity. With mediation, you and your partners pursue dispute resolution in a nonconfrontational way. Even better, you can probably agree on a mediator who has experience with your type of dispute. Keeping the disagreement out of court may help you reach an acceptable resolution faster and less expensively than litigation.

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