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Why are business partnerships likely to have disputes?

On Behalf of | Nov 28, 2023 | Business Litigation

According to the U.S. Small Business Administration, California had 4.2 million small businesses as of 2022. Many of those were partnerships, and while any type of business venture could lead to problems, partnerships seem to be a breeding ground for issues.

Understanding why partnerships are often the epicenter of business disputes requires a closer look at the dynamics inherent in this form of business arrangement.

Blurred lines

Partnership disputes often result from the blurred lines between personal and professional relationships. Unlike corporations, partnerships often involve individuals who share business responsibilities and personal histories. There is an emotional connection.

This intertwining of personal and professional can lead to misunderstandings. It can also create emotional tension. It can become challenging to separate the relationships when business decisions become entangled with personal sentiments.

Shared responsibility

Shared decision-making is the foundation of a partnership. Each partner has a say in the direction and operations of the business. It also means shared responsibility for anything that happens.

Rifts may occur when partners have differing opinions. They may not see eye to eye on business strategies, financial decisions or even day-to-day operations. Additionally, the choices of one partner can have a negative impact on the other partner.

Financial interdependence

Financial disagreements can carry emotional weight when partners share profits and losses. Disputes over unequal contributions or perceived imbalances in profit distribution can strain the partnership and erode trust among partners.

The best way to make a partnership work and avoid serious disputes is to have a comprehensive agreement. It should outline the roles, responsibilities and expectations of each partner. Having a well-defined framework gives clarity to partners and can make the business run more smoothly and cultivate a harmonious and dispute-resistant business environment.