Practical. Principled. Approachable.

Partnership agreements and ADR can prevent the need for a trial

On Behalf of | Dec 5, 2022 | Business Disputes

Partnership disputes can harm businesses and relationships between partners. Partnership disputes can be addressed in a partnership agreement. And if there is a dispute, it may be resolved without going to trial.

Addressing disputes in a partnership agreement

Partnership disputes can be addressed proactively in a partnership agreement. The partnership agreement outlines the ownership and management of the business between partners.

A partnership agreement can also include a dispute resolution clause. For example, the agreement may say that disputes must be arbitrated before they can go to trial, and/or that arbitration will be binding.

A partnership agreement can also detail how partners can leave the organization if there is a dispute that cannot be resolved. This may include a buy-out agreement.

Mediation and arbitration

If your partnership agreement states that partners must attempt mediation or arbitration before litigating a dispute, this can benefit the business as a whole.

Mediation and arbitration are forms of alternative dispute resolution.

Mediation allows the parties to work with a neutral professional who will guide discussions. The aim is to negotiate a resolution to the issue that both parties find satisfactory. Mediation is not binding unless the settlement is approved by the court.

Arbitration is more formal than mediation but less formal than litigation. Each side will state their case before a panel of arbitrators. The arbitrators will issue a decision that can be binding if the parties agree so beforehand.

Benefits of mediation and arbitration

Mediation and arbitration can benefit a business.

They are less costly than litigation, thus freeing up financial resources that can be funneled back into the business.

They are less time-consuming than litigation, thus allowing partners to continue running business as normal, at least as much as possible.

They are non-adversarial. The parties work together, not against each other. This can preserve relationships between the partners.

Finally, mediation and arbitration give the parties more control over how the final settlement is reached. The parties also have more control over the terms of the settlement. Thus, they may be happier with the outcome, and more willing to continue working together as partners.

Trials are not the only way to resolve partnership disputes. A partnership agreement can state parties must try mediation or arbitration first. This may lead to a more satisfactory outcome to the benefit of the partnership as a whole.