Entering into a business partnership always comes with risks. No matter how well partners get along, disputes can arise due to differences in vision, financial issues or operational conflicts.
Having a dispute resolution clause in your partnership agreement is crucial to ensuring that disagreements are handled efficiently and fairly.
What does a dispute resolution clause do?
A dispute resolution helps partners settle an issue regarding, for example, a breach of contract, decision-making conflict or failure to fulfill an obligation. The goals of a dispute resolution clause are to minimize losses and maximize the longevity of a partnership. Ultimately, they:
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Prevent costly litigation: Without a dispute resolution clause, conflicts may end up in court, leading to expensive legal fees and lengthy proceedings. Alternative methods like mediation or arbitration can save time and money.
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Ensure a clear conflict resolution process: Nobody is left in the dark about what to do when problems arise. A well-drafted clause outlines the steps to resolve disagreements, reducing uncertainty and preventing unnecessary escalation.
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Maintain business stability: Disputes can disrupt daily operations and impact profitability. A structured resolution process minimizes disruptions and allows the business to continue functioning.
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Encourage fairness and cooperation: Having a predefined process ensures that all parties have an equal say in resolving disputes. This keeps power struggles to a minimum.
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Protects business relationships: Legal battles can destroy partnerships and reputations. Resolving disputes amicably helps preserve professional relationships for the future.
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Speeds up conflict resolution: Court cases can take months or even years. A dispute resolution clause streamlines the process, ensuring faster settlements and less disruption — and less likelihood of litigation.
Parties can also agree to a buy-sell agreement to dissolve a partnership when an amicable resolution isn’t possible. This agreement can set the terms that “trigger” the clause and can keep a company out of litigation that might otherwise destroy it.
Legal guidance can be invaluable when drafting your partnership agreements — making sure that they look at all the possibilities (good and bad) for the future.