How to Handle Legal Disputes in Partnerships

30 June 2025

If you're in a business partnership, you already know how much trust and collaboration it takes to keep things running smoothly. But what happens when things go south? Maybe a partner isn't pulling their weight. Or perhaps there's a disagreement about finances, strategy, or ownership. Legal disputes in partnerships can show up in a lot of messy ways — and if they're not handled properly, they can end businesses, ruin relationships, and cost a fortune in legal fees.

The good news? Most disputes are avoidable—or at least manageable—when you know how to handle them. In this guide, we’re going to break it all down. We’ll cover the reasons legal disputes happen, how to prevent them, and what steps to take when the gloves come off.

Why Do Legal Disputes Arise in Partnerships?

Before we dive into solutions, let’s talk about the root of the problem. Most legal disputes in partnerships happen for a handful of predictable reasons:

1. Poor Communication

Ever played a game of telephone? That’s what bad communication feels like in a business partnership. When partners don’t clearly share expectations, roles, or updates, confusion brews. And where there’s confusion, conflict isn’t far behind.

2. Unclear Roles and Responsibilities

If nobody knows who’s supposed to do what, it won’t take long before fingers start pointing. Roles that overlap or responsibilities that slip through the cracks can create tension—and eventually, legal blowback.

3. Financial Disagreements

Money gets awkward, fast. Whether it's about profit-sharing, investments, or expenses, disagreements over finances are one of the most common—and heated—sources of legal conflict.

4. Breach of Fiduciary Duty

This one’s huge. Partners have a fiduciary duty to act in the best interest of the business. If one partner starts using company resources for personal gain or makes decisions that only benefit themselves, lawyers will likely be getting a phone call.

5. Exit Strategies and Ownership Disputes

What happens if a partner wants out? Or worse, what happens when they just walk away without tying up loose ends? Without a detailed exit strategy or clear ownership terms, things can get ugly.

How to Avoid Legal Disputes Before They Start

Let’s be real: prevention is ten times easier (and cheaper) than litigation. Here’s what you and your partner(s) should be doing from Day One.

1. Create a Solid Partnership Agreement

This is your holy grail, your roadmap, your rulebook. A detailed partnership agreement spells out each partner’s rights, responsibilities, ownership stake, and how profits or losses will be handled. It should also include how to resolve disputes and what happens if a partner wants out.

Don’t DIY this one. Get a qualified attorney to help you draft it. Trust me—it’s worth every penny.

2. Get Everything in Writing

Verbal agreements? That’s a hard no. Always document decisions, agreements, and updates in writing. Whether it’s meeting minutes, emails, or formal contracts—having a paper trail makes it much easier to resolve disagreements if and when they arise.

3. Define Roles and Responsibilities Clearly

Avoid territory battles. Write down who’s responsible for what, down to the nitty-gritty. Revisit these roles regularly to make sure everyone’s still aligned.

4. Schedule Regular Check-Ins

Make communication a habit, not an afterthought. Regular meetings help all partners stay on the same page and identify potential friction before it becomes a full-blown issue.

5. Have a Dispute Resolution Plan

Include a section in your partnership agreement that outlines how disputes will be resolved. Will you use mediation first? What about arbitration? Do you want to avoid court altogether? Spell it out in advance.

Steps to Take When Legal Disputes Arise

Even with all the right precautions, sometimes disputes are unavoidable. If you find yourself in a conflict, here are the steps to take to handle things professionally and legally.

1. Stay Calm and Keep Emotions in Check

This is easier said than done, especially when it feels like your business (and your future) is on the line. But freaking out won’t help. Take a deep breath, and approach the issue logically—not emotionally.

2. Revisit the Partnership Agreement

Pull out that agreement you (hopefully) created early on. Most well-drafted agreements will have clauses that address dispute resolution, profit-sharing, duties, and more. This could save you hours of arguing and thousands in legal fees.

3. Initiate an Open Conversation

Sometimes just talking it out does the trick. Set up a private meeting with your partner(s) to talk through the issue. Be honest, listen actively, and focus on solutions—not blame.

4. Consider Mediation

If you’re not getting anywhere with direct discussions, bring in a neutral third party. A mediator can help both sides feel heard and guide you toward a mutually satisfactory resolution. It’s way less costly than court and a lot more constructive.

5. Look Into Arbitration

Arbitration is a step up in formality from mediation. Unlike a mediator, an arbitrator makes a binding decision after hearing both sides. It’s faster and cheaper than a lawsuit, but still offers a legal resolution.

6. Consult with a Business Attorney

If things are piling up, or if you have legal exposure, don’t wait. Talk to an attorney who specializes in business partnerships. They’ll help you understand your rights, options, and next steps without escalating the issue unnecessarily.

7. Litigate as a Last Resort

Taking your partner to court is the nuclear option. It’s expensive, time-consuming, and often results in a broken relationship beyond repair. Only go down this road if all other avenues have been exhausted and the stakes are too high to ignore.

Key Legal Remedies Available to Partners

Depending on how bad the situation is and what kind of agreement you have, there are several legal remedies that might be available:

1. Injunctions

If a partner is doing something harmful—like stealing clients or money—courts can issue an injunction to stop them immediately.

2. Damages

You can sue for financial damages if a partner’s actions have cost the business money or damaged its reputation.

3. Accounting

If there’s a dispute over finances, the court can order an official accounting to ensure all partners have access to accurate financial records.

4. Dissolution of Partnership

In extreme cases, the only way forward could be to dissolve the partnership altogether—either voluntarily or by court order.

When Should You Hire a Lawyer?

There’s a fine line between a disagreement and a dispute requiring legal help. So when should you actually lawyer up?

Here are a few red flags:

- Your partner is violating the terms of the agreement
- There’s suspected fraud or theft
- You’re being threatened with legal action
- Mediation or internal resolution has failed
- You’re considering dissolving the business

A good business attorney won’t just go to battle for you—they’ll also help you avoid litigation wherever possible.

How to Keep Your Partnership Strong (and Dispute-Free)

Let’s be real: no partnership is immune to issues. But that doesn’t mean you’re doomed. In fact, with the right habits, you can build a rock-solid business relationship that’s built to last.

1. Communicate Early and Often

The best partnerships run on open, frequent communication. Don’t wait until a problem explodes to start talking.

2. Practice Active Listening

It’s not just about speaking your mind—it’s about hearing the other person, too. A lot of conflicts stem from people feeling misunderstood or ignored.

3. Address Issues While They’re Small

Think of conflict like a spark. If you deal with it early, it’s easy to put out. But if you wait too long? You’re dealing with a wildfire.

4. Respect Each Other’s Strengths

One partner might be a whiz with numbers, another might be a branding genius. Let people shine where they’re strongest, and stay in your lane where it makes sense.

5. Revisit Agreements Regularly

The business world changes fast, and so do individual circumstances. Review your partnership terms annually to make sure they still reflect your current reality.

Final Thoughts

Legal disputes in partnerships are like potholes on a highway—you’ll probably hit one eventually, but if your vehicle (aka your agreement and communication) is solid, you won’t crash and burn. The more proactive you are, the easier it is to steer clear of disaster.

Build strong agreements. Talk it out. Don’t let things fester. And when things get complicated, get a professional involved. After all, your business—and your sanity—are worth protecting.