20 Apr 3 Common Partnership Disputes
A partnership agreement can be an excellent way to start a company. A business partnership can deepen an existing friendship, or it can drive a wedge between a relationship that can never be repaired. If you’re thinking about going into business with someone else, it’s important to have an agreement in place so you’re better prepared to avoid or resolve potential disputes without destroying the relationship.
Why do you need a partnership agreement?
A partnership agreement is a contract between two or more individuals who are going into business together. It should determine how much each partner is investing in the business, how profits are distributed, and how debt and other obligations will be covered. With the right rules in place, you may be able to avoid some of the biggest problems business partners experience once they’ve launched their organization.
In order to understand what needs to be part of that partnership agreement, we’ve put together some of the top disputes that can drive a once-thriving business into the ground.
Common Partnership Disputes
One of the most common issues for business partners is money, and surprisingly, it’s not one partner investing less than another that causes the most financial disputes; instead, it’s usually embezzlement of finances by the partner put in control of the company’s finances. One way partners can embezzle is to create false expenses in order to divert funds from the company to a personal account; or they can be more brazen, such as the case between comedian and actor Dane Cook, who partnered with his half-brother, Daryll McCauley, to serve as his business manager. McCauley walked away with millions and was sentenced to four to six years in prison for 27 counts of larceny. A partnership agreement that ensures each partner signs off on expenses can prevent financial problems including embezzlement.
When two partners invest in a company, both partners expect the other to invest as much time and energy into making the company a success as the other. If one person is unable to invest as much time in the enterprise as another, providing a larger salary as incentive – which can be structured into a partnership agreement – can prevent animosity that puts the business in jeopardy.
If a company is formed based on the intellectual property – patents, trade secrets, software, brand names, works of art, etc. – of one person, a dispute within the company can end with the person whose ideas were the foundation of the company walking away without their intellectual property. A recent example of this is By Chloe, a vegan restaurant founded by Chloe Coscarelli and her partner company ESquared. The CEO of ESquared opened a series of restaurants without input from Coscarelli, bankrolling a $10 million expansion and splitting with the vegan chef, taking the By Chloe trademark with them. The lawsuit between the two is ongoing. Protecting that intellectual property in a business agreement can prevent a partner from walking off with your ideas, patents, or in the case of By Chloe, your name.
A Business Attorney Can Protect Your Rights
An experienced attorney who specializes in business partnerships, Brandon Fernald of Fernald & Zaffos can help you draft a strong partnership agreement that will protect both parties in the event of a disagreement. If you are considering going into business with a friend or colleague, call our offices today.