According to the Bureau of Labor Statistics, the one-year survival rate for new businesses in the South Atlantic region (which includes Florida) is just over 75%. In other words, a quarter of all new partnerships will fail within their first year of operation. Additional partnerships will undoubtedly fail beyond their first year of operation, and these businesses face unique challenges due to the interdependence of partners. Disputes can easily arise between partners for various reasons, and these disputes threaten the long-term sustainability of partnerships.
However, a partnership dispute does not necessarily need to lead to the failure of the business. Partners may be able to resolve these disputes with effective legal strategies, potentially keeping the organization alive for many years to come. Partners who wish to explore these strategies may wish to speak with experienced business law attorneys in Clearwater. Consider expanding on this conversation by contacting Clearwater Business Law at (727) 502-6874.
Alternative Dispute Resolution Could Be an Obvious Choice
Alternative dispute resolution (ADR) could be an obvious choice for those who face partnership disputes. In fact, this strategy might be mandatory. The partnership agreement is the legal foundation for this type of business, and it will likely contain instructions on how to approach disputes. Many partnership agreements contain clauses that mandate some form of ADR if partnership disputes occur. Common types of ADR include mediation and arbitration. Generally speaking, ADR is preferable to litigation due to its affordability, privacy, and potential for reduced stress. If partners go to court to resolve their disputes, they could incur significant legal fees. Litigation also puts partners at the mercy of the court, which may rule in ways that some or all partners disagree with.
That being said, ADR may not be appropriate in all situations. Partners must carefully consider whether all parties are willing or able to negotiate in good faith. Some disputes involve bitter disagreements and personal vendettas, to the point where it would not make sense for partners to be in the same room (much less negotiate effectively with one another). Mediation or arbitration may also fail, leaving partners with no choice but to proceed with litigation. An experienced partnership dispute resolution lawyer in Pinellas County may be able to assist with negotiations in various ways. Effective negotiation tactics might include the use of leverage, the careful communication of needs and wants, and more.
Partnership Dissolution Could Be a Valid Strategy
Sometimes, partnership disputes are so difficult to resolve that the business can no longer continue. For example, two tech entrepreneurs might form a partnership to create a startup. If one partner is intent on leaving the business, partnership dissolution may be the only outcome. By definition, a partnership must have two or more partners. If one partner leaves in this situation, the other cannot continue the business under a partnership structure. As a result, the parties would need to formally and legally dissolve their partnership before moving forward. A business lawyer may be able to assist with this partnership dissolution process. The Florida Division of Corporations provides instructions on how to dissolve partnerships, along with links to necessary and helpful forms. These include the Certificate of Dissolution with Notice of Dissolution.
Benefits of Partnership Dissolution
Note that many partnership disputes arise due to business challenges. If the partnership is failing, dissolution might also be in the best interests of all partners. Bankruptcy is another related strategy that could be viable if the partnership is struggling financially. Partners may need to discuss whether it makes more sense to formally dissolve the company or to file for bankruptcy. Bankruptcy at least gives the partnership a chance at survival, but some partners may prefer dissolution. Partnership dissolution requires the company to distribute remaining assets back to the partners, and this may be preferable for partners who wish to “cash out.” Serious disputes may arise between partners who prefer bankruptcy and those who prefer dissolution.
Buyouts Allow Partners to Leave
If one partner wants to leave, the other partners can potentially continue the business without dissolution or bankruptcy. In this situation, a “buyout” could be appropriate. In a buyout, the partner who wants to leave receives a payment equivalent to the value of their partnership shares. The other partners are responsible for providing this payment, and this could be a relatively easy way of allowing one partner to leave in the midst of a dispute. The departing partner may have wronged the other partners in some way. Maybe they disagree with the direction of the business. Some partners leave out of necessity, perhaps due to health challenges or family commitments. Regardless of the specifics, Clearwater Business Law may be able to assist partnerships with these buyout deals.
Partnership Agreements in Business Dissolution
Often, partners can refer to their partnership agreements for instructions on how to facilitate these buyouts. However, it is worth noting that buyouts may not be possible in certain situations. Perhaps most notably, a buyout is only possible if the remaining partners are able to provide assets equal to the shares of the departing partner(s). Sometimes, partners are unwilling to provide these large cash payments. In other situations, the assets may only exist in highly illiquid forms, making buyouts time-consuming or infeasible.
Learn More About Partnership Disputes With Clearwater Business Law
Some strategies universally apply to all types of partnership disputes. For example, alternative dispute resolution is often a logical choice regardless of the specific dispute in question. On the other hand, some partnership dispute strategies are only effective in certain situations. Partners and business leaders might need to consider their unique circumstances before choosing an appropriate dispute resolution strategy, and online articles may not provide this degree of customized guidance. In contrast, a business law attorney in Pinellas County may be able to consider the unique aspects of each partnership dispute before providing advice. Explore this conversation further by contacting Clearwater Business Law at (727) 502-6874. We serve partners in Dunedin, Largo, New Port Richey, Oldsmar, Palm Harbor, Pinellas Park, St. Petersburg, Tarpon Springs, and Clearwater.