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3 ways to prevent business dissolutions

On Behalf of | Nov 21, 2022 | Business Litigation

Challenges can arise in any business partnership. When owners can not find a solution, the daily operation of the business becomes challenging, and they might consider ending the partnership.

Knowing the common causes of these conflicts may help business owners anticipate these scenarios and address these issues in their partnership contracts at a time when they agree. Having a written agreement of expectations can help prevent problems in the future.

Detail fiduciary duties

Each partner has to act in the business’s best interest. When at least one partner puts individual priorities over the business, those actions might be a breach of fiduciary duty. Some examples are:

  • Wasting company resources
  • Misspending money
  • Poor decisions that lead to financial losses
  • Theft

If a partner breaches this duty, the other partners may file lawsuits or request dissolution. Having detailed guidelines can help prevent problems when differences of opinion arise about financial spending.

Define everyone’s roles

When coming together in a partnership, the contract should detail the roles of each partner. When contracts do not define the responsibilities of the partners, confusion may ensue, leading to disagreements. If one partner feels his or her contributions outweigh the others, animosity can develop.

Create a formal partnership agreement

One way to avoid misunderstandings that may lead to ending the partnership is to create a detailed business agreement from the start. Detailing business objectives and goals early on ensures that all partners have the same intentions with the business, avoiding future conflicts.

The success of business partnerships depends on several factors. Detailing expectations at the formation can help the partnership flourish.