There Are 3 Types of Partnership Disputes
Knowing which you have helps determine your solution!
I deal with a lot of conflict in my work. If you are in a partnership that has sour spots, you’re not alone. Do not underestimate the seriousness of the problem. Even a minor amount of tension between partners can fester into a business-damaging conflict. Deal with it.
It helps to understand and face the kind of partnership problem you have. That helps set a course for resolution. Let me tell you about the 3 types of disputes I see. Keep in mind that these fall on a spectrum from minor to very serious. And of course there are sub-types but let’s keep this simple.
Type 1: Conflict Between Parties That Can Be Negotiated to Resolution
This is exactly as it sounds. There is a dispute over something that can be resolved through negotiation. Generally, there are 1 or 2 issues that sparked tension and the parties have not talked it out. For example, one partner takes $15,000 out of the business to buy a new car. Why not? The business is doing well and there is plenty of money in the bank. And, the partner uses his vehicle mostly for work, so he feels the business should help him get a new car. The other partner is upset because it either wasn’t discussed or was presented as a “done deal.” The second partner might buy $2500 worth of furniture for his home on the company credit card. Why not? Clients come to his house and $2500 is a lot less than $15,000, right?
Can you see how this can escalate? Sure you can. But people in the middle of a dispute like this always feel they are behaving fairly and reasonably.
This kind of dispute can be tamped out fairly easily. Let’s balance the ledger. Each partner gets a bonus of $15,000 that becomes income and shows on the books. Fair and square. Maybe, because the car is used mostly for business, we might agree that part of the money that went toward the purchase be taken as a business expense and that partner gets another $5,000. We can negotiate ANYTHING that people agree to that is legal. (We can’t buy furniture for both partners as business expenses unless we have a legitimate deduction) At the end of the process, if both partners are happy, that’s all that matters.
Type 2: We Can Make the Problem Go Away
Some disputes go away when the core problem goes away. Let’s say that our two partners are fighting over who should get paid more for working harder. This comes up often in businesses in their first 2-4 years. At the first sign of success, both partners want more. That’s logical. The problem occurs when somebody says something like, “I bought in the ACME account and that’s half of our sales! I should get a piece of that!” The statement may be true, but if the other partner is tied to keeping the books and doing administrative duties, she can’t be out looking for new accounts. And, if getting new accounts means playing golf 4 times a week with prospective new clients, look out! A dispute is coming.
This is a bit harder to resolve but setting some guidelines in advance can let the steam out of this type of dispute. We might set a commission schedule that says the partner who generated the new account gets 10% of the profits from that account for the first 6 mos. The other partner, who handles administration, gets 10% of the profit for the first 6 months as well. Again, partners can do whatever they agree to. The key is to reach an agreement on these issues in advance of them becoming disputes. If we define how commissions are paid, it cuts the conflict.
Lots of disputes fall into this category. Very often conflicts can be resolved by getting some operating rules in place. Yes, this can cost more money than merely talking out a dispute, BUT the result of this process is a more profitable business! This kind of dispute arises from poor or weak business practices. Fix those and you will see more profit.
Type 3: Belligerent Party Who Cannot Be Pleased
These are sad, tense, and stressful cases. Sometimes you have an irrational party on your hands and no amount of mediation or problem solving is going to fix things. Belligerence comes in many forms. It’s not always yelling and screaming or refusing to talk. I’ve seen cases where a partner is the nicest guy on earth and always happy to talk. But he won’t ever do what he agrees to do. If there is an agreement to turn in all receipts by the end of the week, he’ll be the one with no receipts. “Lost them all, sorry.” You grow weary of beating your head against the wall with this guy.
What can be done? I always start by putting rules and policies in place. At least then you have some degree of accountability. Partners can be fired. Most people don’t understand this. A partner can be fired for cause. You can’t take away ownership without a legal process, but a partner can be fired.
Once I am clear that one party is a belligerent, I will recommend preparing for legal action.
Legal action must always be your last resort because it’s expensive and unlike in number 2 above, the business will not be better off after a bloody battle. In fact, the business may not survive.
That’s it. Think about the nature of your dispute. If you have a Type 2, you’re in luck. Work your program and everyone wins. If you have a Type 1, don’t wait until things blow up. Start talking now.
And if you have a Type 3? Start by trying to bring structure to the business. At least that gives you some legal cover later. Things might work out. If they don’t, at least you know what you’re dealing with, and you can demonstrate that you tried to fix it.
Chris Reich, TeachU
The key to getting all of these problems fixed is to act as soon as possible. Waiting is guaranteed to make things worse.