Starting a business with a family member, friend or colleague often begins with excitement and optimism. You trust each other completely and don’t need formal paperwork. A handshake or verbal agreement is all that you need.
Unfortunately, many business disputes begin exactly this way. Even the strongest relationships can be tested when money, responsibilities or business decisions come into play. And without a written partnership agreement, misunderstandings can quickly turn into expensive legal battles.
Protect your business from day one
Business partners don’t anticipate disputes when they first start working together. However, businesses evolve, and situations change over time.
Many partnership agreements stem from unanswered questions that could have been addressed before the business began. Common disputes involve:
- How profits and losses should be divided
- Decision-making authority
- Each partner’s contributions and responsibilities
- What if one partner wants to leave the company
- What if one partner wants to bring on an additional partner
Even when partners believe they’re on the same page, memories fade, and expectations fade. A written agreement provides an objective reference when disagreements arise.
Where partners don’t establish their own rules, Michigan law may fill the gap with default rules governing the relationship. But those default provisions may not reflect what each partner originally intended.
Relying on Michigan’s rules governing partners’ rights and duties rather than a carefully drafted agreement can lead to unexpected outcomes and additional conflict.
A well-drafted partnership agreement serves as a roadmap for the business. It clarifies expectations before disagreements occur and gives partners a process for resolving issues without unnecessary litigation.
When partnership conflicts can’t be resolved informally, there can be significant financial consequences. Beyond attorney fees and court costs, legal disputes can interrupt daily operations, damage customer relationships, reduce employee morale and harm the company’s reputation.
A legal professional can help draft partnership agreements, resolve disputes before they escalate and negotiate buyouts. Seeking their guidance early can protect your investment, preserve important business relationships and position your company for long-term success.