Partnership disputes can become one of the most challenging issues that business owners can face. The good news is that Minnesota business owners can more effectively protect their partnership’s operational success and future by understanding the causes of disputes and legal options for resolving them.
Common Causes of Partnership Disputes
Business partners can get into conflicts over various aspects of running their company. Some of the most frequent reasons for partnership disputes include:
- Disagreements over company finances, including the need for capital calls, unequal contributions of money, distributions of profits, or alleged misuse of funds
- Disputes over day-to-day operations and primary decision-making authority for the business
- Claims of breaches of fiduciary duties, including alleged self-dealing, conflicts of interest, usurpation of business opportunities, or disclosure of confidential information
- Conflicts over exit strategies and succession planning, including whether and when to sell the business, succession of other parties to a partner’s interest, or buyout terms when a partner retires
- Disputes over the company’s strategic direction, including whether to stay in a line of business or transition to another business model
Applicable Minnesota Law
Minnesota law governs partnerships through the Uniform Partnership Act. The Act regulates relations between partners in a partnership and between the partners and the partnership. The UPA also allows partners to draft and execute a partnership agreement that can supplant various governing provisions of the Act. However, the UPA does not allow partnership agreements to:
- Unreasonably restrict partners’ right of access to books and records
- Eliminate the duty of loyalty (although a partnership agreement can identify specific activities that do not violate the duty of loyalty)
- Unreasonably reduce the duty of care
- Eliminate the duty of good faith and fair dealing (although an agreement can set the standards for measuring the duty of good faith and fair dealing)
- Alter the power to dissociate as a partner
- Vary the right of the courts to expel a partner
- Vary the requirements to wind up the partnership
- Vary the law applicable to a limited liability partnership
- Restrict the rights of third parties under the UPA
Strategies for Resolving Partnership Disputes
Partners can amicably resolve disputes among themselves or with the partnership through various methods, such as:
- Negotiation – Partners may informally discuss a resolution of a partnership dispute.
- Mediation – Partners who have trouble negotiating a settlement of a dispute may turn to a neutral mediator to help them see both sides of the conflict and identify solutions to resolve it.
- Arbitration – Partners may submit serious disputes to arbitration, which can provide a private resolution of a conflict more quickly and for less cost than litigation.
- Buyout – A partnership agreement can establish a buyout mechanism through which a partner or faction can buy out another partner or faction to resolve an intractable dispute.
- Dissolution – As a last resort, partners may agree or seek a judicial order to dissolve the business when a dispute makes it impossible to continue operation.
A partnership agreement can require partners to pursue specific dispute resolution mechanisms, such as mediation or arbitration, or set the terms of a buyout to resolve an intractable dispute.
Preventing Future Partnership Disputes
Best practices for partners to avoid future partnership disputes include:
- Drafting a comprehensive, tailored partnership agreement
- Periodically reviewing partnership agreements as the business reaches various milestones
- Establishing clear roles and responsibilities for each partner and documenting them in the partnership agreement
- Agreeing upon specific dispute resolution methods
- Maintaining thorough financial and operational records and making those records available to partners
Contact a Business Law Attorney
Don’t let a partnership dispute jeopardize the hard work you’ve put into building your business in Minnesota. Contact Christensen Law PLLC today for an initial consultation with a business law attorney to discuss your options for protecting your interests and preserving your business.
