Using your partnership agreement to manage difficult conversations

Partnerships may be challenging to navigate, particularly when difficult conversations with partners arise. Whether it’s about financial disagreements, shifting responsibilities, or strategic directions, these conversations can strain relationships and may jeopardise the business’ future. Fortunately, your partnership agreement can serve as a powerful tool to help navigate and manage these discussions effectively.

The role of a partnership agreement

A well-drafted partnership agreement can act as a roadmap for partners, outlining their obligations, expectations and responsibilities. It can also act as a guide for when disputes arise. Therefore, having a clear and comprehensive partnership agreement from the onset is imperative.

Key provisions that should be included in any partnership agreement are those that outline the following:

• Roles and responsibilities of each partner
• Ownership and profit distribution
• Decision-making processes
• Conflict resolution procedures
• Exit strategy provisions.

Using the agreement as leverage when navigating difficult conversations

Further to above, here is how you can use and leverage those key provisions when navigating a difficult situation with a partner:

Clarify roles and responsibilities

The roles and responsibilities of the partners should be explicitly outlined within the partnership agreement. Each partner should have a clear understanding of their role within the business, including their respective capital contributions, the specific expertise which they bring to the business, and the day-to-day responsibilities and operational support which they offer to the business – which may vary between the partners.

Disagreements often stem from confusion or unmet expectations about each partner’s role. When this tension surfaces, turning to the agreement can help refocus the conversation. If the roles were clearly defined at the outset, you could revisit the agreement to remind each partner of their specific responsibilities should a disagreement arise. This would ensure that any role-based discussions were rooted in the agreed terms rather than assumptions or emotions.

Resolve financial disputes

Financial disagreements, whether about profit sharing, reinvestment, or expense management, are common in partnerships. Instead of allowing money to become a contentious issue, use the partnership agreement to guide these conversations. The partnership agreement should outline how profits and losses are distributed, how financial decisions are made, and how capital contributions are managed. Referring back to these predetermined terms can bring objectivity to a heated financial discussion, ensuring that both partners follow the rules they initially agreed upon.

Facilitate decision-making

In partnerships, disagreements over strategic direction are inevitable. When two or more individuals are responsible for shaping the future of a business, conflicting visions are bound to arise. Where such disagreement arises, you should review your partnership agreement to see if there are any provisions that address decision-making and voting rights.

This could involve voting systems, weighted decision rights, or dividing decision-making authority by area of expertise. If there are, discuss how they apply to the situation at hand and come to a mutually acceptable solution.

Implement conflict resolution protocols

While every effort should be made to resolve conflicts amicably, sometimes conversations reach an impasse. In such instance, your partnership agreement should expressly outline the steps to take when such disagreement arises. This may include mediation, arbitration, or another process. These protocols are useful in providing a structured approach to resolving disputes without destroying the partnership.

It may also be useful to seek the advice of a neutral third-party mediator – for example a professional mediator, a trusted colleague or friend, a business coach or consultant, or an attorney with experience in business dispute resolution.

However, should the problem persist, or if your partner makes or threatens to make a harmful unilateral decision for the business, you might need to take action, like getting help from legal experts.

Address partner exits

Sometimes, despite best efforts, a partnership may not work out. Difficult conversations around a partner’s exit can be painful, especially if they are abrupt or emotional. However, if an exit strategy is part of your partnership agreement, the process becomes less contentious.

Exit clauses can outline the process for buying out a partner’s shares, how their exit affects the company, the timeframe for their departure, as well as for bringing in new partners. With these terms in place, both parties can have an informed conversation, reducing the risk of fallout and legal complications.

Remember to regularly revisit your agreement

Key to remember is that a partnership agreement is not a static document, and that it should continue to evolve with your business. As your business grows and as new challenges and considerations arise, you should continue to update and amend your agreement to reflect this evolution. We recommend scheduling periodic reviews to ensure that the agreement still aligns with your partnership’s needs and is reflective of its current dynamics.

Partnerships thrive on trust and communication, but difficult conversations with partners are inevitable in any business relationship. By using your partnership agreement and the shared rules within as a guide, you can approach these conversations with clarity, structure, and fairness.