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3 ways your partnership agreement can prevent a business dispute

On Behalf of | Dec 5, 2022 | Business Law

Your partnership agreement is one of the most important contracts you will ever sign if you decide to go into business with another individual. Without a legally-binding agreement in place, even a partnership between two longtime friends can give rise to serious business disputes.

An effective partnership agreement mitigates the risk that a difference in opinion or management style will breed animosity between co-owners. By understanding the various ways such an agreement can prevent or resolve potential disputes, you can make the best decisions when drafting a contract for your own business.

1. Outline each party’s rights and responsibilities

When each business owner has their rights and responsibilities outlined in writing, it reduces the possibility that an individual might overstep the boundaries of their role. Similarly, your contract can include a decision-making process for expanding those rights and responsibilities when necessary.

2. Provide a process for exiting the partnership

When one partner makes the decision to leave the business, it can lead to a heated dispute due to the damage such an action might cause to the overall company. Forming an exit process ahead of time gives each party a legitimate avenue out of the business while also ensuring that operations can continue unhindered.

3. Establish conflict resolution measures

Even with preventative measures in place, there is always a chance that a dispute will arise anyway. Your partnership agreement should establish a process for peacefully resolving disputes. For example, consider taking advantage of mediation services offered by the Maryland Courts.

Forming a thorough partnership agreement can facilitate a more amicable business operation. Consider consulting with a legal professional to ensure your agreement meets all the requirements of an effective contract.