Entering into a partnership agreement with a family member, friend, or colleague from another aspect of your life is a smart way to start a business. It’s not uncommon for partners to start a business with one common goal in mind and then wind up disagreeing on how things are run within the company down the road. This can lead to significant hurdles that some companies cannot work through, therefore causing the business to fold or be sold. When forming a partnership, it’s important to work with an attorney to ensure it is written correctly.
Leading Causes of Partnership Disputes
Partnership disputes are common across the business landscape in Massachusetts and many of them can be resolved using mediation with the help of a business law attorney. The leading causes of partnership disputes include the following:
- Embezzlement – Embezzlement occurs when one partner holds onto assets of the company to convert them into personal assets. Not only is embezzlement grounds for a civil lawsuit, but it is also a crime in Massachusetts.
- Unethical Actions – When one partner commits an unethical action it does not necessarily lead to a crime or a civil lawsuit. However, the unethical actions of a partner can lead to partnership disputes.
- Breach of Fiduciary Duty – Partners hold a fiduciary duty to each other and to the business when involved in an agreement. This means they must act in good faith when making financial decisions at all times. A breach of fiduciary duty often leads to partnership disputes.
- Breach of Contract – the partnership agreement is a contract between the two partners. It outlines their rights and responsibilities to each other and to the company. Partners who operate under both written and oral agreements are protected by Massachusetts law when involved in disputes.
- Fraud – Fraud occurs when one partner intentionally performs an act that deceives the other partner or someone else in the company for financial gain. Deception often occurs through the withholding of facts or misrepresentation of data.
The Uniform Partnership Act
Massachusetts law outlines the rights, interests, and other issues related to entering into a partnership with the Uniform Partnership Act. This law offers protections for stakeholders, entity powers, and recordkeepers. The law also outlines how a partnership can be created, how it can operate, and how it can be dissolved. Partnerships under Massachusetts law are also governed by common law when it comes to breach of fiduciary duty, breach of contract, and fraud.
Using Mediation to Resolve Partnership Disputes
Partnership disputes do not have to mean the end of your company. If you are willing to listen and work with the other partner, you can save your partnership and keep the company operating successfully. One method to make this happen is through mediation. Mediation is confidential and much quicker than litigation. So long as you and your partner agree to attend mediation, you can begin the resolution process as soon as possible.
With mediation being confidential, you and your partner have the freedom to discuss important information about the business and express your viewpoints without repercussion. The mediator is only present to move the negotiations along, listen to both sides, and help you come to an agreement. The mediator is not responsible for making a decision like an arbitrator or judge.
If you are considering creating a partnership agreement, you should include a provision that explains how internal disputes will be handled. You can go as far as outlining the types of disputes that will be handled by mediation and which disputes will need to go to arbitration. This can make the resolution process clearer for all of the company’s stakeholders.
Not all partnership disputes can be resolved using mediation and will need to be litigated with the help of an experienced business law attorney. Having an idea ahead of time what issues can be resolved using mediation will make running the business a bit easier for all involved.
Seek the Help of an Attorney
A partnership dispute can be settled with the help of an experienced mediator. Mediation has become a popular option for companies when the need arises to resolve difficult disputes. Mediation is a simpler, more cost-effective option for companies of all sizes when resolving disputes. The experienced team from Shapiro Mediation Services can help businesses of all sizes when a partnership dispute needs to be resolved. Call our office in Massachusetts at (339) 298-7733 to schedule a consultation today. We will work to protect your rights in the partnership so you can keep moving the business forward.