When the Honeymoon is over: Being Proactive in Handling Partner Disputes

Whether it’s your brother, best pal from college or a like-minded entrepreneur you met at a conference, you will eventually have a disagreement with your business partner. Most of the squabbles may be small but there may come a time when a big issue arises and your dispute over it threatens the operations of your business. You should anticipate this scenario when you first make the decision to partner with someone and make sure there are provisions in your governing documents that address it. We all hope that this never happens but JUST in case it does, you want to be prepared.

Well, how do you go about addressing something like this before it happens? Let’s say you’ve partnered with someone to form a new LLC. You all are considered “members” (the LLC equivalent of a partner) and should have an operating agreement that determines the internal governance of the business. It is in this document that you can have a dispute or conflict resolution clause. This clause would spell out very specific ways in which the members must first handle disputes: for example, a provision may require members to first settle disputes through non-bonding mediation.

There should also be very specific provisions on voting and what percentage is required to make changes to the operating agreement (i.e. majority vote or unanimous vote). This way, in our scenario above, a majority member cannot simply change the requirements for conflict resolution and craft a new strategy that works to his/ her favor. You must be VERY careful in crafting these clauses to ensure they achieve the purposes for which they are designed. There are several other related factors that must be addressed. Heavy burden, right? Not necessarily- call us TODAY to assist you in drafting your documents so that your business and your interest in it has optimal protection in the event of a dispute!

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