Concepts of Partnership Disputes

Published: 18th November 2008
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Partnership is a type of business structure that has two or more owners and has not been registered as either a limited liability company or a corporation. It may be considered as the cheapest and simplest business entity that can be established and operated by two or more co-owners.

How are partnerships formed?

Partnerships are automatically formed when two or more persons engage in a business enterprise intended for profit. It can be formed with just a simple handshake.

Partnership is the only business structure that can be formed by oral agreement. However, a lot of oral agreements lead to misunderstanding between the parties, which often lead to partnership disputes.

Partnership Disputes

Relationships sometimes experience arguments, even relationships between business partners. More often than not, these arguments lead to disputes.

Partnership disputes may arise in relation to the following:

• Matters that involve money including contribution, capital accounts, share of payments

• Classification of personal assets and partnership

• Discrepancy among partners

• Liability of partners

• Assets and property distribution

• Management authority

• Sharing of profits

• Responsibilities of each partner

How to Prevent Partnership Disputes?

Since most misunderstandings and arguments lead to disputes, one way of avoiding these conflicts is through a written agreement known as partnership agreement.

Although a written partnership argument is not required when forming a partnership, it is advisable to have one to settle conflicts and minor misunderstandings immediately when they arise before erupting into a full-blown dispute.

There are different laws governing partnerships depending on the state. It is usually called "The Uniform Partnership Act" (UPA) or "The Revised Uniform Partnership Act" (Revised UPA).

These laws establish the basic legal rules to be applied to partnerships including the rules unless different rules are set out in a written partnership agreement.

Since state laws are broad and are intended to be applied to general situations, it is better to have a partnership agreement wherein partners structure your agreement and state the rules that will suit your business.

The following is a list of the major topics that most partnership agreements cover:

• Introducing the partnership

This consists of the basic information of the partnership that may include the following:

• The name of the partnership

• The address of the business site

• The information regarding the partners

• Length of partnership

• Brief description of the business

• Purpose of the business

• Contributions to the partnership

The agreement should state who is going to contribute the needed resources and the percentage of ownership each partner will have.

• Shares of profits, draws, and losses

• The authority of partners

• Decision making

Partners should consider how to make decisions and the agreement should state what comprises a minor or major decision.

• Management duties of each partner

• Allowing new partners

• Withdrawal or death of a partner

• Resolving disputes

Resolving Partnership Disputes

There are cases where disputes are resolved through court procedures or through litigation but there are some other ways to resolve disputes among partners. One is through the alternative dispute resolution (ADR) wherein disputes can be resolved through negotiations rather than through the complex process of litigation.

Our expert Los Angeles business and corporate attorneys specialize in business litigation such as partnership disputes. Visit our website to avail of our free case analysis.

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