Partnership Agreements and Disputes
Partnership disputes can significantly impact the operations and profitability of your business
If not settled properly, partnership disputes even have the potential to end your company. Learn more.
What is a partnership agreement?
A partnership agreement is a legal document outlining the terms and conditions of a for-profit business between you and your partners. This document is critical to ensure clarity of expectations, responsibilities, obligations, ownership shares and how profit and losses are distributed amongst the partners.
What should your partnership agreement contain?
Key components of a partnership agreement include:
- name of the business or firm
- names of each person or partner in the business
- each partner’s capital contribution and entitlement to proceeds
- how to divide the profit and losses amongst the partners
- decision-making process and authority in decision making
- management responsibilities and restrictions of duties
- procedures on how to resolve disputes
- process of adding or removing partners
- exiting of a partner or the termination of the partnership
What types of partnership agreements are there?
There are several types of partnership agreements, which are generally governed by statute such as the Partnership Act in Ontario. The needs and goals of your business and partners will determine the type of partnership you establish.
- General Partnership Agreement: All partners share ownership in the company, with shared profits, liabilities, and responsibilities.
- Limited Partnership Agreement: This partnership differentiates between general partners and limited partners. General partners manage the business and are liable for its debt, while limited partners contribute capital and share in the profits but have limited liability and no management of the company.
- Limited Liability Partnership (LLP) Agreement: This partnership can only arise in certain professions as allowed and governed by applicable legislation. All partners have limited liabilities, which can protect each partner’s personal assets from the debts and liabilities of the business. This type of agreement is often used by the professional services like accountants and lawyers.
Why do you need a partnership agreement?
It is essential that you to have a partnership agreement to prevent misunderstandings and conflicts and protect the interests of all the partners. It provides a structure for how your business will be run amongst the partners and how disputes will be resolved.
What is a partnership dispute?
A partnership dispute is a disagreement amongst partners in a business or firm. If not settled properly, these disputes can significantly impact the operations and profitability of your business and potentially even lead to your business or firm dissolving. Resolving these disputes could require negotiations, mediation, other alternative dispute resolution, or even legal action. It will depend on the terms of your partnership agreement and the nature of your dispute.
Why do partnership disputes occur?
There are several reasons why you could find yourself in a partnership dispute. Some of the main reasons include:
- difference in vision or direction for the business
- conflicts in roles, responsibilities, and workload
- differences in management styles, decision making processes or how to allocate resources
- disagreement on financial decisions
- conflict on how to distribute profits
- breach of the partnership agreement
- allegations of misconduct, unethical behaviour, or financial impropriety
- conflict over division of assets and liabilities when a partner decides to leave the business, or the firm is dissolved
- dispute over the addition of new partners
These reasons can cause instability in your business and should be resolved quickly. Having a lawyer experienced in resolving commercial and partnership disputes to help you through these issues can help to achieve a timely and cost-effective resolution, or if necessary, create a workable plan for successfully navigating complex legal proceedings.
Whether you have questions about your partnership agreement, are experiencing conflict with your partners or want out of your partnership agreement, Whitten & Lublin’s team of employment lawyers and litigators can help you. We will review all relevant documents and agreements, listen to your situation and concerns, and then explain your options based on your unique situation. If you are navigating a partnership conflict, we can help with negotiations, mediation, arbitration, or if necessary, litigation. Whitten & Lublin has handled numerous types of workplace disputes. Our skills, experience, and reputation are widely recognized by both clients and peers, making us one of the most recommended workplace law firms.
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