The Conflict Expert

When You Are Starting a Business With a Friend or Partner….It’s so exciting that you might forget to think through how you are going to work together! Business partner conflict and between co-founders is normal and what’s key in preventing business partner disputes is clear communication.

You might be the best of friends and know each other well. But that might change once your vision gives way to the practicalities of running a business on a day-to-day level.

Typical Disputes

(+) business partner disputes often relate to roles and responsibilities. Whilst it may have been understood that a founder may be responsible for on area of the business, another may be doing less work which can cause resentment, especially if they are entitled to the same share of profits or salary.

(+) partners disagree over important decisions regarding the business and how to expand or pivot. Add to that the stresses of losing money and exterior factors such as an economic downturn or a change in market trends and you have a recipe for disaster.

(+) Ownership over certain assets and intellectual property may come into discussion, especially if a partner wants to leave the startup. If that’s the case, then the division of assets and what happens to the venture will cause tensions.

The key to preventing disputes between founders is to have clear partnership agreements in place from the start, to prevent startup disputes. It should be part of your vision and an even more important instrument to reduce energy, time and potential legal fees for resolving disputes if things go wrong.

Founder agreement checklist of clauses to consider for preventing disputes:

Responsibilities and roles – who does what specifically? What happens if roles must be revised because a third party comes onboard ? What happens if one person is working more than another or is not working at all ? What happens during maternity / paternity/ illness?

Decision making clauses – depending on your company setup, you should include a clause about who in the business has the authority to make decisions. Would certain people have voting rights and other wouldn’t ? Would it depend on your investment percentages? Would somebody have a veto and would every type of decision require a unanimous vote? What process is in place for making those decisions fairly and efficiently?

Budget and Expenses – Clear provisions should state how and when expenses can be reimbursed and what the budget is for that. This is especially true if you have different views about how money should be spent on certain elements of the business i.e. marketing , equipment, staffing etc.

Salary and profit shares – Most disagreements occur when the business becomes successful so it’s crucial to ensure there is clarity around how the profits are shared and whether, how much and when you will receive a salary. Will it depend on initial contributions? Will it always be in money?

Removal / Departure Processes  –  You should also incorporate a clause about partners who must leave or who wish to leave and how to manage that process. What happens to their investment? What about their intellectual property and yours? Can you continue to operate without them? Would you need to pay off a partner if the others are agreed that one should be removed in certain circumstances? What process is in place to remove a partner and on which grounds?  You should also consider non-disclosure agreements and non-compete agreements to make sure you protect your client base and trade secrets.

Termination  / Dissolution Processes – What happens if the business folds or the partners agree for other reasons, to cease trading ? Without wishing to be pessimistic, your business has a 20% chance of failure in the first year and so it would be prudent to think about what to do with any important assets, products, intellectual property rights and other resources in that context.

Mediation Clause/ Law and Jurisdiction Clause – I would highly recommend a mediation clause in the case of any dispute which is difficult to resolve. Even if you have clarity in your contract and you have spoken at length about expectations, sometimes our emotional state and ego can block reasonable solutions. A mediator can help you work through conflict on a personal and company level. This could bring about greater connection, clarity and empowerment.

These are the very basics of a founders agreement that attempts to prevent disputes, but it is always advisable to discuss this further with a lawyer to ensure your contract covers every eventuality and appropriate wording. A template might be a useful first step in creating a founders agreement. It will be legally binding so getting it right from the start will save legal costs in the long run.

Nothing, however, is a substitute for transparent and productive conversations. You need to have these before you financially commit to another person to understand their values, their needs, their desires and their vision for the future. You need to be able to acknowledge each other’s emotions, listen actively and work out resolutions that work for you, your partners and the business. This is how you build trust from day one and ensure disagreements are easily dealt with when they arise.

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