Business partners often share priorities and expectations. However, they can also end up embroiled in disputes over the conduct of one partner or disagreements about the future of the organization that they operate together.
Frequently, partnership disputes may arise based on expectations related to partner contributions to the business. Occasionally, there may also be disagreements about whether partners must indemnify each other for mistakes and oversights.
What do those hoping to address a significant partnership dispute need to know about contribution-related disputes and indemnification?
Contracts can clarify expectations
The most effective partnership agreements generally include clear terms regarding the expectations imposed on each partner. As is the case for friendships and romantic relationships, unspoken expectations can easily poison a partnership.
The agreement between the partners should include clear provisions outlining the contributions each partner intends to provide. Those contributions may include property retained from a prior business, capital and services provided.
Clearly outlining the timeline for making those contributions can be important as well, as one partner may expect the other to provide all of the capital in a lump sum, while the other may intend to make smaller contributions over the course of multiple years. Provided that the partnership agreement clearly outlines expectations for contributions, a frustrated and disappointed partner not receiving the support they anticipated can litigate or otherwise seek to enforce the terms of the initial agreement.
When does indemnification apply?
Sometimes, business partners have a responsibility to indemnify one another. The organization that they start may also need to indemnify both of them. Typically, indemnification applies in scenarios outlined in the contractual agreement or as required by state law.
Business executives, including partners, may receive indemnification for liability related to any decisions made and actions taken in good faith on behalf of the business. However, behavior that clearly violates company policy or written agreements may not qualify for indemnification. One partner may potentially be liable for the impact of their actions or decisions if indemnification does not apply.
Reviewing the partnership agreement, the foundational documents for the organization and the circumstances leading to a conflict can help partners evaluate their options. Business litigation or a buyout can potentially help solve issues related to one partner failing to make appropriate contributions to the company or concerns about liability.
