Key Takeaways

  • A partnership resolution is a formal method for addressing disputes, decisions, or structural changes within a business partnership.
  • A partnership agreement should define partner roles, contributions, voting rights, and include mechanisms for resolving disputes before they escalate.
  • Buy-sell agreements protect partners by establishing rules for ownership transfer in cases of death, disability, or departure.
  • Common causes of partnership disputes include financial disagreements, unequal workloads, unclear responsibilities, or differences in vision.
  • Effective dispute resolution methods include negotiation, mediation, arbitration, and court intervention if necessary.
  • Well-drafted agreements may also include deadlock-breaking provisions, such as buyout clauses or third-party decision-making.
  • Legal guidance is critical to ensure partnership resolutions are enforceable and minimize financial or operational risks

Partnership resolution definition refers to resolving a dispute between partners in a business partnership. The way certain disputes in partnership will be handled should be spelled out in the partnership agreement.

What Is a Partnership Agreement?

A partnership agreement is a document that outlines the obligations, requirements, and expectations of business partners. When entrepreneurs form a partnership they should create a partnership agreement to be signed by all parties involved.

This document should be as thorough as possible covering many different scenarios. Consider the different situations that are likely to arise during the lifespan of the company. It is always a good idea to enlist the help of a business formation lawyer when drafting such important documents.

The Uniform Partnership Act was designed to guide partnership through the dissolution process in case they did not form a partnership agreement. Certain states also have laws in place to guide businesses in such situations. Even though there are laws and guidelines in place already, it's still better to formulate your own documents.

Why Partnership Resolutions Matter

Partnership resolutions ensure that important business decisions and disputes are handled in an organized and legally recognized manner. They create a written record of actions taken by partners, such as admitting new partners, authorizing loans, or resolving disagreements. Without a clear resolution process, partners risk prolonged conflicts that can stall operations, damage trust, and even lead to costly litigation. Establishing these procedures early fosters accountability and helps protect the partnership’s long-term viability.

What Should Be Included in a Partnership Agreement?

A well-written partnership agreement should include the following information:

  • Partnership name and address
  • Names and signatures of partners - Signatures signify agreement to everything included in the document.
  • Planned length of the partnership - Some partnerships are formed with an intent to dissolve in a certain period of time, maybe after the completion of a specific project.
  • Partnership purpose or goal - Most businesses state the goal of legally operating and expanding their business, but some include more specific entrepreneurial goals.
  • Banking information - Certain partners may be given the authority to sign checks and handle certain banking duties.
  • Contributions of and compensation for partners - When a partner gets involved in a business, they usually give some form of contribution, like money, services, or property.
  • Managerial duties of partners - The specific responsibilities of each partner should be clearly spelled out to help avoid disputes.
  • Voting rights - Some decisions may be made without the knowledge or consent of other partners, but certain decisions should require a vote.
  • Admission of new partners - How will the business handle bringing in new partners?
  • Expected work hours and vacation time
  • Resolution for disputes - The protocol for partnership disputes should be specified, even if you think a dispute will never happen, which can help avoid legal costs.
  • Provisions for amending the agreement
  • Buy-sell agreement

Common Causes of Partnership Disputes

Disputes can arise in nearly any partnership, regardless of how strong the relationship may be at the outset. Common triggers include:

  • Financial disagreements over profit distribution or reinvestment.
  • Unequal effort or contributions, where one partner feels they shoulder more responsibility.
  • Management authority conflicts, especially if decision-making powers are unclear.
  • Strategic differences in how the business should grow or pivot.
  • Personal issues when friendships or family relationships mix with business.

Identifying these risks and planning for them in the partnership agreement reduces the chance of disputes escalating into legal battles.

What Is a Buy-Sell Agreement?

Every partnership agreement should include a buy-sell agreement. This portion of the document will lay out exactly how partners should handle the death, disability, retirement, or divorce of another partner. In the case that a partner leaves the business for any reason, can the remaining partners buy back their shares?

This may not seem like a crucial question, but it certainly can become one when unexpected events occur. For example, what if a partner dies and their next of kin automatically takes over their ownership in the business? What if this person's views for the partnership don't align with the views of the remaining partners? Being able to buy back those shares could prevent a seriously expensive dispute. This is called a cross-purchase agreement.

A stock-redemption agreement takes place when a company buys the shares of a departed partner instead of the remaining partners. This means that those shares can then be resold to other investors or partners.

Buy-sell agreements are quite simple when a partnership is only made up of two partners, but things get more complicated when several shareholders or owners are involved.

Methods of Partnership Resolution

When disputes do arise, partners should rely on agreed-upon methods to reach resolution. Common approaches include:

  1. Negotiation – Direct discussions between partners to resolve issues privately.
  2. Mediation – A neutral third party helps facilitate compromise without imposing a decision.
  3. Arbitration – A binding process where an arbitrator issues a decision that partners must follow.
  4. Litigation – Court intervention when other methods fail, though it is often costly and time-consuming.

Many agreements include tiered resolution clauses, requiring partners to attempt negotiation or mediation before resorting to arbitration or litigation. This staged approach can save time and preserve relationships while still ensuring there is a clear path forward if conflicts remain unresolved.

Partnership Disputes

Partnership disputes can arise from many different situations. Even the most successful businesses can encounter disputes. Whether partners are disagreeing on their visions for the future of the company or a new individual wants to join the company, a partnership agreement is essential to keeping the business healthy and thriving through such disputes.

Frequently, partnerships are created between friends and family members with a past together, so disputes can end up being very upsetting and even emotional.

To be sure that a partnership agreement covers all of the necessary bases, a business attorney can look it over and offer advice.

Deadlock-Breaking Provisions

One of the most difficult challenges in partnerships is a deadlock—when partners are evenly divided and no decision can be reached. To avoid paralysis, agreements often include provisions such as:

  • Buyout clauses that allow one partner to purchase the other’s interest.
  • Put and call options, where one partner can force the other to buy or sell.
  • Third-party decision-making, where a neutral advisor or mediator resolves the tie.
  • Shotgun clauses, enabling one partner to offer to buy the other’s interest, with the recipient required to either accept or buy out the initiator at the same price.

These tools ensure that business operations can continue even when partners reach an impasse.

Frequently Asked Questions

  1. What is the purpose of a partnership resolution?
    It provides a formal method for recording decisions and resolving disputes, ensuring business operations continue smoothly.
  2. How are disputes typically resolved in partnerships?
    Most begin with negotiation, followed by mediation or arbitration if needed. Litigation is the last resort.
  3. Can a partnership function without a resolution process?
    Yes, but it leaves partners vulnerable to prolonged disputes and legal uncertainty, which can harm the business.
  4. What happens if partners are deadlocked?
    Deadlock provisions—such as buyouts or third-party decision-making—help break ties and move the business forward.
  5. Do I need a lawyer to draft a partnership resolution?
    While not always required, a lawyer ensures the resolution is enforceable and tailored to state laws and the partnership’s needs.

If you need help with partnership resolution, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.