How to settle disputes between business partners

Business disputes can become public quickly and impact even successful businesses. In recent media reports, there has been speculation that business owners of the well-known athleisure brand PE Nation, Pip Edwards and Claire Tregoning, are ‘feuding’.

The brand has denied the rumours. But it raises the question: “how do you resolve disputes between business partners?”

Business partnerships can be an excellent way to start and run a successful business and often do well when the partners are aligned. However, disagreements among partners can quickly arise, leading to legal disputes that can disrupt or even destroy the business. It’s crucial for business partners to understand their responsibilities when disagreements arise to prevent such disputes from escalating.

We look at tips for business partners in conflict and what their legal obligations are. This is specifically for business partnerships and whilst similarly it is not the same legislation that governs the duties of company directors.

Partnerships are a popular form of business structure in Australia, as they are relatively easy and inexpensive to set up. In Victoria and New South Wales, partnership disputes are governed by the Partnership Act 1958 (Vic) and the Partnership Act 1892 (NSW), respectively. These acts provide guidance on the formation, operation, and dissolution of partnerships, as well as the rights and obligations of partners.

Partners have a duty to act in good faith and in the best interests of the partnership, and decisions should be made by consensus wherever possible.

Partners must also fulfill their contractual obligations and exercise reasonable care and skill in carrying out their duties. When partners disagree, their responsibilities depend on the terms of their partnership agreement and the type of dispute.

Common disputes business partners have

Business partnership disputes can arise from various reasons, including disagreements over:

• Business strategy
• financial decisions
• Distribution of profits and losses
• Expansion plans
• Management roles and responsibilities
• Breach of contract
• Ending or leaving a business partnership

When a dispute arises, it is important that if you can’t resolve it satisfactorily to determine the appropriate course of action to seek a resolution.

Disputes over business strategy, expansion plans, and management roles can be very effectively resolved through negotiation and mediation.

Tips for business partners in disputes

When partners disagree, they have a responsibility to act in the best interest of the business and each other. They must also adhere to the terms of the partnership agreement and fulfill their contractual obligations.

Below are some ways of consideration for partners for when disputes arise.

Communicate effectively: Partners must communicate clearly and effectively to understand each other’s concerns and work towards a resolution. Effective communication can help prevent misunderstandings, reduce tension, and build trust.

Act in good faith: Partners must act in good faith towards each other and the business. They should not take actions that harm the business or its reputation, or act dishonestly or unfairly towards each other. Tit-for-tat responses to another partner’s conduct is almost never helpful.

Seek expert advice: Partners may need to seek expert advice to resolve disputes effectively. Expert advice may include legal, financial, or business advice. Partners must make decisions based on expert advice that is in the best interest of the business. Drawing on legal, accounting and taxation expertise can be a valuable investment. Independent advice can assist in decision making, reduce misunderstandings and prevent a much more costly dispute arising.

Fulfilling obligations: Partners must continue to meet their obligations to the partnership while working through their dispute, this includes continuing to fulfill contractual, financial, managerial and other obligations under the partnership agreement and legislation.

Avoid conflicts of interest: Partners must avoid conflicts of interest that may harm the business or undermine their relationship. They should disclose and seek independent advice on any potential conflicts of interest. Even though there may be a dispute with another partner, it is vital to continue to act in the best interests of the business.

Resolving a partnership dispute

Business partnership disputes can be time-consuming, expensive and stressful. It’s crucial to resolve disputes quickly to minimize the impact on the business and retain the value of the business. If a business is troubled by issues, it won’t be long before clients or employees and even suppliers can be impacted.

Below are some steps that partners can take to quickly resolve a dispute.

Communicate effectively: Partners must communicate effectively and transparently to quickly resolve disputes. They should identify the root cause of the disagreement, listen to each other’s concerns, and work towards a resolution.

Seek mediation: Partners can seek the assistance of a mediator to facilitate discussions and negotiations. The mediation process is a key component to any formal dispute and often results in a settlement without the need for further legal action. If properly handled mediation can restore the business relationship as each party has an opportunity to hear the other party’s grievances and can respond in a constructive and considered way.

Initiate formal legal proceedings: If the issue is irreconcilable or urgent action is required, legal proceedings such as injunctive relief or court proceedings may be required. A business partnership dispute lawyer will need to assist you to advise you of your rights and legal options available to you.

Seeking an expert opinion

Many disputes can be resolved quickly and efficiently, to do so it is important to get the right legal advice from the outset. Business disputes can be complex. They need careful consideration of many factors to achieve a commercially viable outcome and finality.

An experienced litigation lawyer will be able to provide you with clear guidance, drawing on a combination of legal options and commercial considerations specific to your business. Consulting a lawyer early is the key to giving you as many options as possible and preserving value.

At PCL Lawyers, our business partnership dispute lawyers are skilled in handling a wide range of business disputes. We ensure our clients are fully advised and understand their options. This allows clients to be fully informed when deciding on the best course of action for them and their business.

Our legal team is skilled in delivering quality legal advice to obtain a prompt resolution, through to managing complex court proceedings.

If you have a business partnership dispute and need advice on how to approach a situation, speak to one of our lawyers early to get guidance on how to get a resolution.

Call us on 1300 907 335 or complete an online form and we will respond promptly.