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Should partnership agreements have dispute resolution clauses?

On Behalf of | Jul 15, 2022 | Business Law |

Having a successful business often means working with one or more others. After all, even if you have a brilliant idea, you probably need help with something. If you can find the right partners who are willing to focus on the same goals, you can put your venture on the path toward success.

With a comprehensive partnership agreement, you provide a framework for you and your business partners to follow. Even though this agreement is likely to minimize disputes, you eventually may have to deal with disagreements.

What is a dispute resolution clause?

According to Psychology Today, business partners should address disputes by having open-ended conversations with each other. If communication does not work, though, you may not want to waste valuable resources on expensive legislation. That’s where a dispute resolution clause comes in.

With a dispute resolution provision, you and your partners know the steps you must take to resolve your disputes. Your provision may mandate mediation or even arbitration. It also may describe what happens when partners reach an impasse.

Are dispute resolution clauses common?

Dispute resolution provisions are exceedingly common in partnership agreements. While including one may keep you and your partners out of court, your clause does not guarantee you can resolve all disputes. Therefore, you also may want your partnership agreement to include a provision for ending the partnership or perhaps even forcing out an uncooperative partner.

Ultimately, because dispute resolution clauses keep partners from gumming up the works, having one in your partnership agreement ensures you can focus on meeting customer demands instead of fighting with your partners.