How to Settle Disputes Between Partners

January 22, 2025 | By Law Office Of Parag L Amin, P.C.
How to Settle Disputes Between Partners

Business partnerships are built on mutual trust, shared goals, and a commitment to success. However, even the strongest partnerships can encounter disputes, whether over financial decisions, business strategies, or personal conflicts. Left unresolved, these disputes can threaten the stability and future of the business.

Settling disputes effectively requires understanding the root cause, exploring resolution options, and, when necessary, seeking legal guidance. 

For Los Angeles business owners, navigating these conflicts is crucial in a competitive environment.

At the Law Office of Parag L. Amin, P.C., our partnership dispute lawyers assist partners in resolving disputes while protecting their business interests. Call us at (213) 293-7881 to discuss your situation and find a path forward.



Identifying the Source of the Dispute

Business lawyers collaborating at a law firm office, discussing financial strategies and professional solutions.

Resolving a partnership dispute begins with identifying its cause. Understanding the underlying issue helps partners address the problem effectively and prevents similar conflicts in the future.

Common Causes of Partnership Disputes:

  1. Financial Disagreements: Conflicts over profit distribution, expense allocation, or investment decisions often arise.
  2. Strategic Differences: Partners may disagree on the direction of the business, such as expanding into new markets or altering the product lineup.
  3. Breach of Trust: Allegations of misconduct, such as mismanagement of funds or withholding information, can erode trust.
  4. Workload Imbalances: Resentment may build if one partner feels they are contributing more effort or resources than others.

How Miscommunication Can Turn into Future Issues

Even minor misunderstandings can escalate into major disputes. Regular, clear communication can ensure that all partners align on goals and responsibilities.

Miscommunication is a frequent yet underestimated cause of partnership disputes. Even minor misunderstandings can spiral into significant conflicts, especially when trust and transparency are compromised.

Examples of Miscommunication:

  • Financial Assumptions: One partner assumes the business will cover certain expenses, while the other expects personal contributions.
  • Role Confusion: Lack of clarity about responsibilities can lead to accusations of underperformance.
  • Unclear Goals: Disagreements on business objectives, such as expanding versus maintaining the current scope, often stem from misaligned visions.

Preventing Miscommunication:

  • Schedule regular meetings to discuss progress, concerns, and goals.
  • Use written communication for key decisions to create a clear record.
  • Encourage open dialogue and active listening to address issues early.

By addressing communication gaps proactively, partners can prevent minor issues from escalating into disputes that disrupt the business.

Reviewing the Partnership Agreement

A well-drafted partnership agreement is a valuable tool for resolving disputes. This legal document outlines the rights, responsibilities, and expectations of each partner, providing a framework for addressing conflicts.

Key Provisions to Look For:

  • Dispute Resolution Clauses: These specify the steps partners must take to resolve disagreements, such as mediation or arbitration.
  • Roles and Responsibilities: Clearly defined roles can help identify whether a partner has breached their obligations.
  • Buyout Terms: If one partner wishes to leave, the agreement may include provisions for valuing and purchasing their share.

What If There Is No Agreement?

If the partnership lacks a formal agreement, California’s Revised Uniform Partnership Act (RUPA) provides default rules for resolving disputes. These rules, while helpful, may not fully address the nuances of your situation, making legal guidance essential.

Reviewing the partnership agreement can clarify the next steps and establish a path toward resolution.

Open Communication: The First Step in Resolution

In many cases, disputes can be resolved through open and honest communication. Addressing issues directly with your partner helps avoid misunderstandings and allows for collaborative problem-solving.

Tips for Constructive Dialogue:

  • Choose the Right Time: Schedule a meeting when both parties can focus on the discussion without distractions.
  • Listen Actively: Ensure each partner has the opportunity to express their perspective without interruption.
  • Focus on Solutions: Frame the conversation around finding resolutions rather than assigning blame.

When to Involve a Neutral Third Party

If emotions run high or communication breaks down, a neutral mediator can help facilitate productive discussions. This step is often more effective than escalating the dispute to litigation.

By prioritizing open communication, partners can address conflicts early and minimize their impact on the business.

Mediation as a Dispute Resolution Tool

Mediation is a popular method for resolving partnership disputes without resorting to litigation. This process involves a neutral mediator who guides both parties toward a mutually acceptable solution.

How Mediation Works:

  1. Both parties present their perspectives in a structured setting.
  2. The mediator facilitates discussions, helping identify common ground.
  3. The parties work together to craft a resolution that meets their needs.

Benefits of Mediation:

  • Cost-Effective: Mediation is typically less expensive than going to court.
  • Preserves Relationships: The collaborative nature of mediation helps maintain professional relationships.
  • Faster Resolution: Mediation often resolves disputes more quickly than litigation.

Mediation is particularly effective when both partners are willing to compromise and prioritize the business’s success.

Arbitration as an Alternative to Litigation

Arbitration offers a more formal dispute resolution process than mediation, while still avoiding the time and expense of court proceedings. In arbitration, an arbitrator hears both sides of the case and makes a binding decision.

Key Features of Arbitration:

  • Private Proceedings: Arbitration is confidential, protecting sensitive business information.
  • Binding Decisions: The arbitrator’s decision is legally enforceable, ending the dispute.
  • Faster Process: Arbitration typically resolves disputes more quickly than traditional litigation.

When to Consider Arbitration:

  • When the partnership agreement includes an arbitration clause.
  • If negotiations or mediation have failed to produce a resolution.
  • For disputes requiring a definitive ruling without the delays of court proceedings.

Arbitration provides a structured and efficient way to resolve complex disputes while minimizing disruption to the business.

Litigation: When Court Intervention Becomes Necessary

While mediation and arbitration are preferred for many disputes, some situations require court intervention. Litigation is often a last resort, reserved for cases where other methods have failed or when a partner’s actions are particularly harmful.

Common Reasons for Litigation:

Risks of Litigation:

  • High Costs: Legal fees and court expenses can be significant.
  • Time-Consuming: Court cases often take months or even years to resolve.
  • Strained Relationships: The adversarial nature of litigation can damage personal and professional relationships.

An experienced attorney can help you navigate the litigation process and protect your interests.



Structuring a Buyout Agreement

In some cases, the best way to resolve a partnership dispute is for one partner to buy out the other’s share of the business. A well-structured buyout agreement ensures fairness and minimizes the risk of future conflict.

Key Considerations for Buyout Agreements:

  • Valuation of the Partner’s Share: Use a neutral appraiser to determine the fair market value of the partner’s interest in the business.
  • Payment Terms: Outline how the buyout will be funded, whether through lump-sum payment or installments.
  • Non-Compete Clauses: Include provisions to prevent the departing partner from competing with the business.

Negotiating a buyout agreement with the help of an attorney ensures all parties’ rights are protected.

The Role of Fiduciary Duties in Resolving Disputes

In a business partnership, fiduciary duties require each partner to act in the best interests of the business and their co-partners. When a partner breaches these duties, it can become a central issue in the dispute.

Core Fiduciary Duties in Partnerships:

  1. Duty of Loyalty: Partners must prioritize the business over personal gain, avoiding conflicts of interest.
  2. Duty of Care: Partners must make informed decisions and exercise reasonable care in their actions.
  3. Duty of Good Faith: Partners are expected to act honestly and fairly toward each other and the business.

Addressing Breaches of Fiduciary Duty:

  • Collect evidence, such as financial records or communications, to demonstrate the breach.
  • Pursue resolution through mediation, arbitration, or litigation if necessary.
  • Consider removing the partner if their actions have significantly harmed the business.

Understanding fiduciary duties helps partners identify when legal intervention may be required to resolve disputes.

Evaluating the Financial Impact of a Partnership Dispute

Partnership disputes often have financial implications that extend beyond legal costs. Evaluating these impacts is essential for making informed decisions about resolution strategies.

Financial Consequences of Disputes:

  • Revenue Loss: Prolonged disputes can disrupt operations, leading to decreased revenue.
  • Legal Fees: Mediation, arbitration, or litigation costs can strain the business’s finances.
  • Damaged Relationships: Partner conflict can lead to disputes with clients, vendors, or employees that result in lost opportunities.

Minimizing Financial Impact:

  • Resolve disputes quickly through mediation or arbitration to avoid prolonged disruptions.
  • Develop a contingency plan to maintain operations during the resolution process.
  • Work with an attorney to negotiate cost-effective solutions, such as buyouts.

Assessing the financial stakes of a dispute ensures that resolution efforts are aligned with the business’s long-term interests.

Dissolution as a Last Resort

In some cases, dissolving the partnership may be the best or only option to resolve a dispute. Dissolution involves formally ending the business and distributing its assets among the partners.

When Dissolution May Be Necessary:

  • The dispute is irreconcilable, and continued operations are no longer viable.
  • One partner’s actions have caused significant financial or reputational harm.
  • The business’s objectives are no longer aligned with the partners’ individual goals.

Steps to Dissolve a Partnership:

  1. Review the partnership agreement for dissolution procedures.
  2. Notify creditors, clients, and vendors about the decision.
  3. Liquidate assets and settle outstanding debts.
  4. Distribute remaining assets according to the partnership agreement or California law.

While dissolution marks the end of the partnership, it can provide a fresh start for the parties involved.

One of the best ways to avoid future disputes is by creating a robust partnership agreement. A well-documented agreement reduces ambiguity and provides clear guidelines for resolving conflicts.

Key Provisions to Include in a Partnership Agreement:

  • Roles and Responsibilities: Clearly define each partner’s duties and obligations.
  • Profit Distribution: Outline how profits and losses will be shared.
  • Dispute Resolution Clauses: Specify whether disputes will be resolved through mediation, arbitration, or litigation.
  • Exit Strategies: Include provisions for partner buyouts, withdrawal, or dissolution.

Partnership agreements should be reviewed and updated periodically to reflect changes in the business. This ensures the document remains relevant and comprehensive.

How to Handle Emotional Strain During Partnership Disputes

Partnership disputes often involve not just legal and financial stakes but also significant emotional strain. Addressing the emotional impact of conflicts can help resolve a dispute.

Common Emotional Challenges in Partnership Disputes:

  • Feelings of betrayal or frustration if trust has been broken.
  • Anxiety about the future of the business and personal financial stability.
  • Strained relationships with co-partners, employees, or clients.

Strategies for Managing Emotional Stress:

  • Work with a mediator to facilitate productive and respectful discussions.
  • Focus on practical solutions rather than dwelling on past grievances.
  • Seek support from mentors, advisors, or professional counselors to maintain perspective.

By managing the emotional aspects of a dispute, partners can approach resolution with greater clarity and focus.

The Role of External Advisors in Resolving Disputes

Lawyer reviewing the statute of limitations, clarifying legal contract details during a consultation with a business client.

External advisors, such as accountants, business consultants, or industry experts, can play a valuable role in resolving partnership disputes. Their neutral perspectives can help clarify complex issues.

How Advisors Can Help:

  • Financial Analysis: Accountants can provide objective insights into the business’s financial health and the impact of proposed resolutions.
  • Strategic Guidance: Business consultants can help identify solutions that align with the company’s goals.
  • Expert Testimony: In legal disputes, industry experts can provide evidence to support your case.

Engaging external advisors ensures that decisions are informed and well-grounded.

Taking the Next Step Toward Resolving Your Partnership Dispute

Partnership disputes can be complex and emotionally charged, but you don’t have to face them alone. With the right legal support, you can protect your business, preserve valuable relationships, and achieve a resolution that aligns with your goals. At the Law Office of Parag L. Amin, P.C., we have extensive experience helping Los Angeles business owners navigate challenging disputes with confidence and clarity. Call us today at (213) 293-7881 for a consultation and take the first step toward resolving your partnership issues effectively.