Business Partnership Advisor
Together, we can fix your business and partnership problems
Chris Reich, Business Luminary
Partnership Mediation, Arbitration, Litigation, Negotiation and Best of All, Moderation
There are many options if you have a business partnership issue. What you can get here is unlike any other. You can avoid the fight, save thousands of dollars, and see your business improve.
What Are the Possible Methods for Dealing with Partnership Problems?
If your business partnership is breaking down, you have a number of possible ways to get it cleared up. In this post, I will offer you an explanation of each. Keep in mind that these aren’t just different styles to reach the same end. That said, as Stephen Covey would say, “Start with the End in Mind.”
That means you should be very clear about how you want the dispute to end. Consider these possibilities:
- Dissolve the partnership and close the business
- Get your partner out of the business
- Split the business
- Reach a buyout agreement for yourself
- Fix the partnership by resolving the differences
- Fix the partnership and improve the business
Start by getting very clear about where you would like things to end up. It’s best not to pick 2 because having an alternate somewhat taints the process. It’s like saying, “I’d like to fix things with my spouse but if that can’t be done soon, I want to pursue a flirtation with the neighbor.” That’s not the best attitude to attempt a reconciliation.
Mediation is usually a process of all parties to the dispute pleading their case to a mediator. The mediator will try to guide the parties to agreement by seeking compromises.
Partners can choose a mediator or the court can appoint a mediator. The rules for mediation vary a bit, but generally, the mediator will hear both parties and make rulings throughout the process. A good mediator will guide all parties toward agreement without taking a side in the dispute. You can get legal guidance for the process but you must present your side of the story. Lawyers operate behind the scenes.
Mediation is a practical approach to fixing a partnership but it can get expensive. If both partners use attorneys, legal costs can mount up. Then you have the expense of the mediator and clerks as necessary. If your business is large enough to afford the cost, mediation might be a good choice.
Mediation is a “front-facing” process. That means the partners make their cases to the mediator rather than interact directly with each other. I prefer solutions that are reached when the disputing parties interact with each other. Here’s a simplified example. Let’s say two partners dispute over who gets the corner office. The tension gets so extreme that the partners can no longer work together. They go through mediation. The proposes that the office use rotates between the 2 partners every 2 years. Though that’s a reasonable compromise, the partners did not interact to reach that solution. The issue is decided, but the emotional undercurrent remains. Front-facing processes work that way.
It is better to avoid the fight rather than risk a loss. This can be a win-win with the right approach to resolving business partnership differences.
Article by Chris Reich, TeachU
What’s the difference between arbitration and mediation? You’ve probably heard the term “binding arbitration”. Nearly all arbitration is binding. There are exceptions but this isn’t a legal advice column so let’s say that arbitration is binding. The decision of the arbitrator is final. (In some cases, arbitration can be appealed in court but since most of my cases are not in the millions of dollars, I don’t want to use your time explaining a process you’ll never need). Arbitration works a lot like mediation except for that binding part. All parties can and should obtain legal advice about how to best present their side. As with mediation, the process is formal and expensive. Again, this is another front-facing process. Because the ruling is final, there is a bit more pressure on parties to ‘win’ than there is on mediation where compromises can be worked through.
Simply put, litigation means suing. We’re headed for that funhouse called the court system.
This is the most expensive option and should be avoided if possible. Unless there is a lot of money at stake, litigation isn’t a very practical method to solve a partnership dispute. Most attorneys will offer you that same advice: Avoid court if you can. Aside from the expense, it can take years to resolve a case in court. Also, the courts don’t like to get in the middle of personal disputes. If you are a business genius and your partner couldn’t so much as hand out flyers on a street corner, the court won’t sympathize. The usual outcome is the dissolution of the partnership and closing of the business. Why spend $70,000 of your own money to fold the business? Litigation is the ultimate front-facing process. Your lawyers face the judge and present your case. You do not interact with your ‘opponent’.
I support this process when necessary. Negotiation means that you try to work things out with your partner. Most people start by trying to negotiate with their partner but find the process very tense. Things tend to breakdown pretty quickly. Negotiation without advice can make things a lot worse. People will try to talk, the wrong thing is said, tempers flare, and someone storms out. That’s usually when I get the call.
Negotiation is a good option if you get guidance and support in the process. I help people with negotiation when it’s not possible to do my preferred method, Moderation, which I’ll discuss next. Often there are a couple of big issues that sparked the tension. Once the stress begins to rise, people will start to keep score. They’ll make a note of every sin committed by their partner. Having someone help you in the background is very valuable. Not only can you get advice on how to proceed, you also get the emotional support needed to help keep the tempers under control. And, unlike the options above, Negotiation is not a front-facing process. You interact directly with your partner. Sure, it’s hard work, but because there is dialogue, agreements tend to be lasting.
Best of All, Moderation
Moderation isn’t a legal term. It’s a term I created until someone can offer me something better. While I often work with clients on negotiation, Moderation is my preferred method.
I ‘moderate’ the conversation to reach agreements. And, as part of the process, if desired (ONLY if desired), I offer suggestions to help improve the profitability of the business. All partners are involved. We’ll have meetings online or in person to discuss issues and work through solutions. I offer advice based on things I’ve seen work and the partners refine my suggestions to suit their situation. If both (or all) partners talk with me, a neutral party, I can get everybody on the same page quickly (and cheaply) and working together for the good of the business. We’ll agree on policies to prevent future fractures in the relationship and you’ll get help drafting the agreements you need to solidify your partnership.
I call it moderation because the first goal is to moderate the tension. Once everyone has been heard and feels understood, we start on the things that will fix the tension. For example, a common problem arises over money.
Let’s say that one partner takes money from the business without talking with the other. Flashpoint! After hearing both sides in private conversations, I find out that the partner took a couple hundred dollars on 2 occasions. Hardly breaking the bank with a $200 withdrawal. The real issue is trust. We talk through the trust issue and then we set policy. The policy might be that a partner can take up to $300 in a given month if needed, and after informing (not getting permission) the other partner. That caps the withdrawals at a comfortable limit, cuts the mistrust, and saves pride because the partner in need of money doesn’t have to ask permission to take money from his own business. (This is just a simple example)
By talking through the problems with me there to moderate the discussion, it’s easier to make rules that prevent future problems between partners. I get emails every day from clients who tell me how great their relationship is after our work together. And the cost? A fraction of what a lawyer would cost.
Choose the Best Method for Your Situation
Even though I recommend ‘Moderation’ as the best method, your ability to choose moderation may be limited by the level of tension in your partnership. If people wait until the situation is too tense, negotiation may be necessary because one partner may refuse to talk with me. If it’s a really bad situation, you may have to lawyer up and prepare for an expensive fight.
But if you act before things get too bad, you can fix your partnership, improve your business, and get the documents in place that will protect your future. And you can get all that for less that than the cost of a good employee for a month!
Take care and have a very successful rest of the year!
Chris Reich, TeachU
“But if you act before things get too bad, you can fix your partnership, improve your business, and get the documents in place that will protect your future. And you can get all that for less that than the cost of a good employee for a month!”
Somebody puts up money with someone who agrees to contribute labor as their contribution to an equal Partnership. Once things are set up, and a lot of money is spent, the other Partner fails to perform, and the troubles begin. I get 2-3 calls like this every week.
Partners take advantage of partners every day and they get away with it. It is the most painful call I get. It sounds like this, “I put all the money I had into starting our business. My partner had bad credit and no money, but he promised to do all the work to get the business going.
While it seems like it should be very easy to get out of an LLC, it can be complicated. Even if the business is very small, there are considerations beyond getting your money back. In this post, I’ll try to hit the important points of getting out of an LLC Partnership. These same items apply if you want to remove a member from your LLC too.