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Business Divorce & Partnership Disputes – Causes & Resolution

Business Divorce

When Partner Disputes Arise, Business Divorce Results

“Business divorce” is a term commonly used to describe what happens when a business partnership breaks down and the partner decide to part ways. Business divorce is much like marriage divorce in that both meet at the intersection of money and emotions.

Unlike marriage divorce, which usually only happens when things are going poorly, business divorce can happen when things are poorly or when they are going great. This is because business partner disputes usually occur when two things happen:

  1. one or more partners feel they are putting in more than they are getting out of the business; and
  2. the loss of trust and respect between one or more partners.

Thoughts of entitlement arise both when one partner thinks the success is due to them or that the failure is due to other partners. Trust and respect break down both when one partner is doing better than another even if both are doing well and when all partners are trying to salvage whatever they can from the sinking ship.

Causes of Business Partner Disputes

  1. unfair compensation system
  2. family issues between business partners
  3. life changes for one partner (such as having a baby)
  4. fighting over control and decision making
  5. personal funding of the business by one partner but not others
  6. partner associations with other businesses
  7. partner associations with certain organizations
  8. social factors between business partners
  9. disparity in hours worked between partners
  10. where one partner takes funds from the business without notifying other partners
  11. a loss of perspective as to why one needs partners

Does Business Divorce Have To Happen When Partner Disputes Arise?

While it may seem inevitable that disputes between business partners will eventually lead to business divorce and a loss of the business, this is not a fact. The main reason that disputes lead to divorce between business partners is that there is no mechanism for coping with these disputes.

A properly drafted business founder agreement such as a partnership agreement (for partnerships), operating agreement (for llc’s) or bylaws (for corporations) can provide the proper systems for managing disputes and avoiding breakdown of partner relationships.

If the compensation system is based on the number of hours one puts in or the number of clients one brings in, it might not seem so unjust. If a partner is allotted a number of maternity or paternity leave days, but is penalized financially if they go over the allowed amount, family and life changes will not have such an affect on the business. If the founders agreement makes one partner in charge of marketing, one partner in charge of employees, one partner in charge of general business operations and another in charge of oversight, there may never arise a dispute about who has control over which decisions.

Sometimes Divorce is Unavoidable, Lets Deal With It

No matter how well your founding documents are drafted towards maintain the health of the relationship, sometimes business divorce is unavoidable. Trying to contract around family issues and social problems between partners is impossible. Failure to follow the agreements usually also lead to business divorce.

That is why the founding agreements must also contain terms for how the business divorce will be handled. That way, court can be avoided in many circumstances. Where a dispute over the terms of the business divorce continues, business partner dispute mediation should be considered.



7 Reasons To Use An Employment Contract

Employment Contracts Considerations for Business Owners

Why Are Employment Contracts Essential To The Health Of Small Businesses?

Using an employment contract with your employees may have crossed your mind, but most small business owners do not follow through with using employment contracts.

Just to clarify, an employment contract is a written document which sets forth the terms of the professional relationship between the business and the employee. A well written employment contract will lay out the specific standards of both the employer’s and employee’s expectations.

With some exception, employment contracts are not a requirement and most employees in the United States do not work under an employment contract. However, the employment contract is usually the business’ best line of defense against employment issues and employee disputes.

Here Are 7 Reasons Why Employment Contracts Are Essential for Small Businesses.

  1. An Employment Contract Is More Than Just A Formality

    Many business owners think of employment contracts as simply a formality. In turn, they opt to use ‘offer letters’ or ‘letters of intent’ to hire. However, such letters are often drafted by business managers and only outline the basic job description. An employment contract drafted by an experienced business attorney will address the scope of employment, payment structure, other benefits of employment, employer roles and a host of other terms, some of which are described below.

  2. The Employment Contract Sets Expectations

    An employment contract can provide a sense of security for both the business owner and the employee. By setting the expectations in the employment contract the employee is made fully aware of what is expected from him or her. The employee knows that if they meet those expectations they will have job security. The business owner knows that if the employee fails to meet those expectations, the business will have grounds to enforce compliance or excuse the employee.

  3. Employment Contracts Promote and Guarantee Confidentiality

    Confidentiality is important to every business and should be addressed in the employment contract. every business has trade secrets, systems, methods and business records that they don’t want being known by the competition or the general public. Employment contracts promote confidentiality by informing the employee exactly what knowledge is to be kept private: during and even AFTER employment. Employment contracts guarantee confidentiality by placing some kind of punishment or other remedy on the disclosure of the confidential information.

  4. The Employment Contract Will Help with Employee Retention

    Good help is hard to find. So difficult in fact, that many businesses spend a lot of money on having other agencies find their talent. Then, the business must invest time and money into training the employee. With so many resources being pent on acquiring an employee, it is in the businesses best interest to keep that employee around for some time. An employment contract can help with employee retention by setting a contracted length of time for the employment, by setting a minimum time the employee must work before receiving certain benefits, and require a certain amount of notice when the employee leaves so that they can be replaced.

  5. An Employment Contract Can Promote Performance with Incentives

    Incentives can be worked into the employment contract to compensate employees for work that is above and beyond the call of duty, further helping the business to hold onto its best performers. By having set guidelines for the incentives program, employees are motivated to over-perform. Setting caps on the incentives can also help the business limit it’s exposure to unjust incentives.

  6. An Employment Contract Protects Your Businesses Market

    Non-Competition agreements have become the standard in most employment contracts as more and more businesses want to protect their markets. Non-solicitation agreements further protect the businesses client list. By protecting their market and their clients, a business can make sure employees do not become competitors. An experienced business attorney is especially necessary here as certain industries have laws controlling and limiting the scope of non-competes.

  7. The Employment Contract Should Address Social Media and Internet Security

    One of the hottest topics in employment law right now is cyber security. Employment contracts must specifically tell the employees what to look for and how to protect against cyber threats. One of the biggest cyber threats in the workplace is Social Media. Employment contracts should be used to stop or greatly limit the use of social media at work, especially on work computers.

    Need A Business Attorney To Draft Your Employment Contracts?

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