How to Handle Disputes in a 50/50 Partnership
A dispute can quickly create a once unfathomable rift between longtime business partners. Even in relationships that go back for decades. Take, for example, the American rock duo Hall & Oates. They produced dozens of hit songs in the 1970s and 1980s and made themselves household names in Canada, the US, and the UK. Their names came back into the news cycle for unfortunate reasons in 2023: Hall accused Oates of “the ultimate partnership betrayal” by planning to sell his share of their joint venture without his permission, bringing to an end a fruitful music and business partnership that spanned half a century.
Even the strongest partnerships can face serious challenges when disagreements arise. If you’re in a 50/50 business partnership, you might be wondering what happens when you and your partner can’t see eye to eye. How do you protect your interests? What steps can you take to keep your business intact without destroying the relationship?
At Whitten & Lublin, we understand how stressful these situations can be. In this post, we’ll provide practical guidance on the legal framework for partnerships in Ontario, explore common sources of conflict, and outline effective ways to resolve partnership disputes. Protecting your business and your peace of mind starts with knowing how to handle these challenges head-on.
Legal Framework for 50/50 Business Partnerships in Ontario
In Ontario, partnerships are governed by the Partnerships Act or, in the case of incorporated entities, the Business Corporations Act.
A partnership agreement can determine how disputes are handled. Ideally, this document outlines the decision-making process, dispute resolution mechanisms, and steps for valuing a partner’s share if the relationship deteriorates. However, even with a solid agreement, conflicts can arise, particularly in 50/50 partnerships where neither partner has a decisive vote.
When disagreements surface, partners must act in good faith to fulfill their fiduciary duties and prioritize the best interests of the business.
Types of Partnerships
- General Partnerships: Responsibility is shared equally for the business’s debts, obligations, and profits.
- Limited Partnerships: At least one partner has limited liability, sometimes only contributing capital.
- Incorporated Partnerships: Structured as corporations, offering partners liability protection but subjecting them to corporate governance rules under the BCA.
Common Sources of Business Disputes Between Partners
Even the most aligned business partners disagree sometimes. But when there are major disputes, or allegations of misconduct, or what one party feels is a breach of their agreement, it can put the future of the business in jeopardy. Common causes of disputes in 50/50 partnerships include:
- Profit Distribution: Disagreements over fair allocation of profits, especially if one partner believes they contribute more.
- Strategic Direction: Conflicts over the company’s growth, such as whether to expand operations, change the business structure, or invest in new opportunities.
- Breach of Fiduciary Duties: Accusations of one partner acting in their personal interests rather than prioritizing the business.
- Buy-Sell Agreements: Disputes over the fair market value of a partner’s share when one partner wants to leave the business.
- Failure to Meet Obligations: If one partner is perceived as not fulfilling their responsibilities and contractual obligations, the other partner may feel the burden is unevenly distributed.
Conflict Resolution in 50/50 Partnerships
When disputes arise in a 50/50 business relationship, it’s natural to feel uncertain and have questions.
There are several potentially effective options:
Negotiation
The first step is often the simplest: an open and honest conversation. Sit down with your partner and calmly discuss the issue. Make sure both sides have a chance to voice their concerns. Revisiting your partnership agreement can often clarify obligations or expectations.
Mediation
If negotiation doesn’t resolve the issue, a neutral third party can help. A mediator facilitates constructive dialogue, ensuring both partners feel heard and respected. Mediation is often an effective way to find a solution that works for everyone without escalating the conflict further.
Arbitration
In an arbitration both partners present their cases to an arbitrator, who delivers a legally binding decision.
Litigation
When other methods fail, litigation may be the only remaining option. While most would prefer to avoid this route, court orders to dissolve the partnership, enforce obligations, or address breaches of fiduciary duties can provide closure for profound conflicts.
Explore Your Options With Whitten & Lublin
Our team has extensive experience helping partners resolve disputes; we approach every case with the goal of protecting your interests and securing the best possible outcome for your business.
As trusted employment and labour lawyers in Toronto, we’ve guided many clients through challenging partnership disputes and shareholder agreement disputes. We’re here to provide clear, actionable advice to help you find the best way forward.
Don’t let a partnership dispute jeopardize your business’s future. Call 416 640 26672 or contact us online to request a consultation.