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What happens when business partnerships go wrong?

in Business Law, Financial Negligence by Robert Auricchio on

Business partnerships, whether incorporated or not, require a commercial approach if the relationship sours.

Too many times I’ve seen former co-owners of a business fail to see the obvious solution to settling the dispute. In some circumstances the conduct of parties is so churlish they could make an acrimonious divorced couple blush.

Despite the complex arrangements sometimes associated with companies, courts take a simple approach. In the case of an unincorporated partnership, the court will simply order that the partnership be dissolved; there be an account of profits; the debts of the business paid and the balance to be split equally.

In the case of incorporated partnerships, if evidence can be given that the business can continue to trade, the court will order that the shares be valued and the remaining partner be paid their fair share.

What causes business disputes?

In many cases I see, business partners become blinded by acrimony and the inability to resolve issues for the following reasons:

  • One partner having an over inflated view on the value of the business (usually a concern about future earnings)
  • The extent of financial and non-financial contributions alleged to have been made by each of them;
  • Allegations of:
    • unauthorised profit taking;
    • dubious accounting practices;
    • breach of their statutory or fiduciary duties;
    • breach of the terms of the partnership or shareholder agreement;
  • Who owns which client’s or customers;
  • Who should retain the business assets?
  • Whether the “selling” business partner should be restrained from competing; and
  • Any intellectual or trademark property issues; or
  • Personal resentment.

Unless you are totally satisfied that the matters above are worth fighting for, former business parties should work and concentrate on settling accounts, including creditors, and apply a commercially practical solution in the same way they started the business.

When it comes to business disputes or disagreements, Former business partners can avoid the cost of litigation by:

  • Agreeing to a payout;
  • Agree to a valuation by an experienced accounting firm, with each party making their own submission on the question of any contributions or factors to be considered; or
  • Involve the assistance of lawyers and the company accountant to assist in the resolution via the mediation process. 

If you’re in dispute with your business partner, contact Slater and Gordon’s dispute resolution practice to speak to a lawyer.

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