You have multiple options when it comes to choosing a structure for your business. Although that structure may seem like a minor piece in the operations of your business endeavor, it can actually play a crucial role in how your business is run and the amount of income that you end up making off it. That’s why it’s important that you understand your business structure options and choose the one that’s right for you. And when you do so, you have to have enough foresight to create your business in a way that protects your long-term interests.
This is especially true in partnerships. While this structure type allows you to retain a significant amount of control over business decisions and can provide you with greater income and protection from creditors in some instances, it isn’t without its challenges. Partnership disputes arise all the time, and when they do, they can threaten daily operations and the viability of the business itself. With that in mind, let’s look at what you can do to try to head off some of those issues on the front end.
While you can engage in mediation and other strategies to deal with partnership disputes when they come up, the best way to avoid them is to engage in sound business formation practices. Here are some tips that you might be able to use to avoid a partnership dispute in your unique set of circumstances:
- Clearly identify roles and goals: If you and your partners don’t have the same goals, then there’s a good chance that you’re going to face conflict in the future. As you sit down to create your business, write down agreed upon goals so that you and your partners are moving in lockstep. Also, ensure that your partnership agreement clearly defines each individual’s role, including their obligations and responsibilities. If you’re unclear here, then there’s bound to be disagreement over who is supposed to do what from a business operations standpoint.
- Create a decision matrix: Inevitably, you and your partners are going to face challenging business decisions that you all don’t agree upon. One way to avoid these issues from blowing up into a bigger dispute is to rely upon a previously created decision matrix. This tool can assist in reaching a fair decision that’s based on previously identified criteria, which were developed with the business’s best interests in mind. This tool can thus remove emotions from the equation and inject fairness into the decision-making process.
- Specify how disputes will be handled: There’s a good chance that you’ll face a partnership dispute at some point in the future. When it comes up, you don’t want it to feel like the wild west with each partner trying to resolve it as they see fit. Instead, you want a process that is fair, efficient and effective. You and your partners can agree to what sort of dispute resolution process makes the most sense for you and your business, which is best to figure out at the time of your business’s creation. That way you can include this process in your initial formation documentation.
Use sound business formation planning to your advantage
A lot of people think that the business formation process is nothing more than a formality. But there’s so much more that can be gotten out of the process than many realize. So, if you’re creating a business, then we encourage you to fully embrace the startup process and educate yourself on how you can use it to protect your and your business’s long-term interests.