Business attorneys see the best and the worst of partnerships. Often these relationships can be mutually advantageous arrangements that last for many years. In some instances, they may run seamlessly until an unforeseen disagreement gives rise to serious conflict. At that point, many business partners seek the services of a partnership dispute attorney to help them navigate the situation. While there are compelling reasons why business attorneys typically urge their clients to draft partnership agreements carefully tailored to reduce the chances of significant conflict between the partners, many people experiencing the stress of a breakdown in their business relationship for the first time may be encouraged to learn that even a highly disruptive partnership dispute need not always end in the departure of a partner or the dissolution of the shared business. In some instances, resolving the dispute can lead to a stronger, more precisely articulated arrangement that serves the interests of all involved. Whether this is a goal for you will depend on the circumstances of your case, so schedule a consultation with an experienced Pinellas County business lawyer by calling Clearwater Business Law at (727) 502-6874.
Partnership Disputes: How They Arise
Under Fla. Rev. Stat. § 620.8202 (2024), any time two or more people decide to work together for a shared business purpose, they form a partnership unless they take legal steps to organize their business differently under Florida law or the “comparable” laws of another jurisdiction. One implication of this relatively open path to partnership formation is that it can be extremely easy to become a partner in a business, or indeed in multiple businesses, without significant preparation, and without going through all of the legal steps that are required for some other business structures. In fact, Florida law even allows for the legal validity of strictly oral partnership agreements, provided that they meet the criteria otherwise established for partnership formation.
The relative lack of what might be considered legal “checkpoints” in partnership formation combines with the fact that the default structure for a partnership business is a general partnership to create a set of conditions in which even experienced business minds may find themselves more deeply involved, and more personally exposed to risk, than they had planned. While this set of circumstances is far from the only scenario in which a partner in a business might benefit from the services of a partnership dispute attorney, it does create a simmering recipe for volatile partnership disputes all parties may wish to address sooner, rather than later.
What Is a Partnership Dispute?
In business, as in purely personal settings, how you (and your partner or partners) go about resolving conflicts is often just as much a factor in determining whether your relationships will last as any measures you might take to prevent conflicts from arising in the first place. Disagreements are a normal and healthy part of life and business. They challenge our ideas and expectations, and prompt us to consider approaches and solutions that otherwise might never have crossed our minds. Disagreements, handled effectively, can be pivotal in inspiring new insights and in strengthening the loyalty and trust that can often be critical to long-lasting, mutually beneficial relationships, in business as in social settings.
The key, usually, is to address any critical disagreements before they cause serious harm, or before they lead to permanent changes or decisions with which one party may not be comfortable – and to do so in a spirit of respect, with an emphasis on finding ways to work together to satisfy all involved. In a partnership business, often the groundwork for this process and approach is already laid in the terms of the partnership agreement. However, even if you and your business partner or partners did not have the foresight to draft clauses in your agreement to fully cover the present source of your conflict, a partnership dispute attorney may be able to help you resolve the matter without dissolving your association and losing the business each of you has worked hard to build.
How To Resolve Disputes in a Partnership?
As Florida business law attorneys in Clearwater, we see partnership disputes regularly. Some, of course, can be traced to genuine, intentional misconduct by one of the partners in a business, or by collusion on the part of two or more partners against the other(s). Many, however, are caused primarily by misunderstandings. How these misunderstandings may be resolved often depends heavily on the terms of the partnership agreement, as delineating procedures for dispute resolution is often one of the most important functions of these documents. In general, there are four main avenues by which partnership disputes may be resolved:
- Negotiation (directly or with the support of an attorney)
- Alternative dispute resolution (ADR)
- Litigation
- Dissolution of the partnership or dissociation of one or more partners
Keep in mind that it is only legal to remove a partner under specific circumstances, and Florida courts in many cases will prompt parties to attempt an out-of-court method for resolving their disputes before moving forward, even when one party has already filed a legal action.
Negotiation
You may find it helpful to refer to negotiation as “direct” negotiation, to distinguish negotiations that take place between business partners directly, or between their attorneys if they are working with professional counsel, from the negotiations that typically form an important part of business mediation. Often negotiating directly with your business partner should be one of the first steps in your attempts to resolve a partnership dispute. When handled effectively, direct negotiation can be an invaluable tool not only for resolving a current conflict between business partners, but also for making future disruptions to the business relationship less likely and easier to resolve.
At Clearwater Business Law, depending on the circumstances underpinning the dispute, we often recommend attempting negotiation with a business partner, potentially with the advice and support of a partnership dispute attorney, before proceeding to more formal and in most cases more costly measures. If your partnership agreement has particularly strict terms concerning how and when external support for dispute resolution must be sought, these terms can obviously play a role in determining the appropriateness of negotiation in your situation, as well.
Alternative Dispute Resolution
Even if you are reasonably certain that litigation is your only real path to resolving your partnership dispute, many Florida judges make it a priority to refer parties to mediation whenever ADR is not plainly inappropriate based on the circumstances of the case. Mediation is one of two methods of alternative dispute resolution very commonly used in business law, and many partnership agreement dispute resolution clauses may actually require the parties to participate in mediation prior to pursuing remedy through the civil courts. Other dispute resolution clauses sometimes call for arbitration, in which case filing a civil action through the courts may not be an option. Either method is typically faster and cheaper than litigation, but they each have some drawbacks as well.
Business Mediation vs. Binding Arbitration for Partnership Disputes
Mediation tends to be the ADR method preferred by the courts because it preserves the rights of both parties to proceed with litigation if the mediation – which generally consists of negotiation, but guided by a third party neutral trained in techniques for lowering potential hostility and fostering an environment conducive to collaboration – fails to yield a compromise solution that all parties agree is fair. Arbitration, the other ADR method commonly used in resolving business disputes of various kinds, also relies on the services of a third party neutral, but in arbitration the neutral issues a decision on the conflict, much as would the judge in a bench trial.
Since there is very little point in arbitration if either party can simply ignore the arbitrator’s decision at will, arbitration is almost always “binding,” meaning the parties agree in advance to abide by the arbitrator’s decision and consider the matter closed. Because binding arbitration usually takes litigation off the table, courts tend not to refer parties for that specific type of ADR. However, it is important to specify that an arbitrator’s decision can sometimes be challenged in court if there is evidence to suggest that it is manifestly unjust. A partnership dispute attorney may be able to help you determine whether you have a case for that type of challenge in the Pinellas County courts.
Early Neutral Evaluation: A Structured Process for Gaining Perspective
Some states list early neutral evaluation (ENE) as a type of ADR; in others, the courts treat it less as a distinct form of alternative dispute resolution and more as a potentially useful tool for helping parties to gain perspective that can support their decision-making concerning whether (and how) to proceed with their case. Either way, early neutral evaluation works in a manner similar to arbitration in that both sides present their arguments and then await the neutral’s decision. However, in ENE the neutral’s decision is not a binding judgment resolving the dispute. Instead, it is an informed assessment of the strengths and weaknesses of each side’s case. While ENE does not see as much use as either mediation or arbitration, a partnership dispute attorney may sometimes recommend this approach as a means of making sure that all parties have a realistic appraisal of where they and their business partners stand.
Additionally, a partnership dispute attorney may be especially likely to suggest early neutral evaluation in cases where some of the parties to the dispute are not represented by professional counsel. Business attorneys are bound by strict professional standards when they work on cases in which the opposing party is “pro se” (representing themselves), and the same circumstances that make it easy to become a partner in a business also make it comparatively common for individuals to enter into these partnerships without having an established relationship with a business lawyer. Early neutral evaluation can offer a helpful tool for making sure that all participants have the benefit of a professional appraisal of the case as it stands. Often laying this groundwork for a shared understanding of where each party’s argument is strong vs. where a neutral professional considers it unlikely to carry the day in court can be an important step toward productive conversations that might resolve the conflict while preserving the future of the business partnership.
Litigation and Dissolution or Dissociation
For obvious reasons, it can be difficult to maintain a positive working relationship through the combative nature of litigation. For this reason, a partnership dispute attorney will usually try to steer clients away from this option if it appears likely that the client will wish to continue the partnership. Should litigation prove necessary, however, you should be prepared for the possibility that you may need to dissociate one or more partners, or dissolve the partnership entirely. Business partners who are sure that they wish to part ways can also usually do so without going to court, if their dispute does not require the intervention of a court to order remedy.
The options and procedures for dissolving a partnership, or removing (dissociating) one or more partners will depend partly on whether the partnership business is a limited partnership under Fla. Rev. Stat. § 620.2204 (2024) vs. a general partnership under § 620.8202, and for a general partnership whether a partner considering, or considered for, dissociation, is a partner at will under § 620.8101(9). In addition, however, many partnership agreements set out more detailed requirements for how the departure of any partner must be handled, and these specifications are generally upheld as long as they are not unenforceable under Florida law.
Discuss Your Situation With a Partnership Dispute Attorney
At Clearwater Business Law, we see numerous partnership disputes and other types of business conflicts, and we know that many of them can be resolved without litigation – often in a manner that preserves the future of the business relationship. How attractive that scenario sounds to someone currently navigating a conflict with their business partner can vary widely, depending on the nature of the conflict and the other circumstances surrounding the case. A conversation with one of our partnership dispute attorneys may help to clarify your options and possible next steps. Reach out to us anywhere in the Pinellas County area today by calling (727) 502-6874 to book a consultation.