Why You Must Have An Arbitration Agreement With Business Partners

Building a business on your own can be a lonely and difficult road. So, it’s always a significant help if you find a business partner who shares the same vision and goals as yours.

And while business partners can challenge each other’s creative judgment and decision-making of what’s best for the company, sometimes the dispute becomes huge and may even result in litigation. But if the thought of going to court and enduring a trial ordeal isn’t what you want, then arbitration may be a much better option to end a dispute.

Understanding Arbitration

Arbitration is a method to resolve a dispute without going to court or avoiding a lawsuit. While they may be similar in many ways, there’s a significant litigation arbitration difference.

During the arbitration, each party has its own lawyer. They can exchange information about the situation and even conduct a hearing of sorts, including bringing witnesses and presenting their side and case for the situation. There’s an arbitrator who can be a retired judge, a lawyer who’s impartial to either side, or an individual with experience in the legal field. The entire arbitration process takes place in a conference room instead of the courtroom.

As you can see, arbitration is a way to resolve disputes peacefully. However, you can’t simply opt for it unless both parties signed an arbitration agreement.

What’s An Arbitration Agreement And Its Components?

An arbitration agreement can be a separate contract or a clause included in a partnership agreement that’s usually labeled as ‘Dispute Resolution’ or ‘Arbitration Agreement.’ With an arbitration agreement, both parties agree to arbitrate current or future disputes rather than going to court. In general, an arbitration agreement is signed at the start of a business relationship before there’s any disagreement.

The components of an arbitration agreement will depend on every partner. In some, you’ll find contracts that only require arbitration in certain disputes rather than being the only one to resolve all kinds of disputes. For the more in-depth arbitration agreements, it’ll mention how the arbitration process will be conducted as well as any limitations. There may also be a section detailing specific rules that should be followed such as choosing the arbitrator.

For the separate arbitration contracts from a partnership agreement, there are other elements that should be included such as the full name and address of both parties, their relationship, where the arbitration should take place, and any other specific details you wish to include.

Overall, though, an arbitration agreement doesn’t need to be a complicated and long legal document. However, it does need to include these basic elements so that if there’s a dispute, there’d be no question about the process and how it’ll be handled.

Benefits Of A Partnership Arbitration Agreement

Here are the benefits of an arbitration agreement with business partners:

  1. Quicker Scheduling And Resolution

Arbitration is much flexible and efficient than filing a lawsuit. In general, disputes are resolved much sooner. It can take several years just to procure a court trial date; however, an arbitration date can usually be scheduled within a few months.

Unlike in court hearings where there’s a backlog of hundreds of cases scheduled, you can simply schedule an arbitration hearing based on the availability of an arbitrator and both parties.

  1. Save On Cost

In most cases, arbitration may cost less than going to court. There are lower costs in preparing for a simple arbitration than preparing for a trial, and you don’t have to pay for court and filing fees. Also, since arbitration is often resolved a lot quicker than court lawsuits, your lawyer fees are reduced.

  1. Less Complicated

Arbitration allows for the simplified rules of procedure and evidence. With litigation, you have to walk the long and complex path of filing motions and papers and attending court processes. However, the normal rules of evidence used in the court might not be strictly applied with the arbitration. This makes it a lot easier to admit the evidence.

In addition, the expensive and time-consuming procedure of discovery, which includes interrogation requests to produce documents and depositions can be reduced in an arbitration process. Things like what documents should be produced or calling a witness can be handled with just a simple phone call with the arbitrator.

  1. Choosing An Arbitrator

In litigation, you don’t have the freedom to choose a judge. You can request for a change of judge, but not specifically the person.

In arbitration, you can choose an arbitrator to resolve the dispute at hand based on guidelines, provided that it’s included in the agreement. This is a helpful component if you wish to find someone who has experience in dealing with the kind of dispute you have without bias and can better understand what’s happening.

  1. Privacy

For those who want to keep partnership disputes out of the public eye, arbitration can provide privacy. Unlike going to trial, arbitration offers a private resolution of matters, keeping all information brought up in the hearing and its outcome be kept confidential.

This is suitable for the well-known public figures in business disputes since all statements, evidence, and arguments will be completely private. In court, on the other hand, if certain records won’t be released, there’s still a risk of public access to each party’s sensitive business or personal information.

  1. Avoid Hostility

When a partnership dispute goes to court, there’s a likelihood that fights and disputes against both parties will continue on every single issue. The added hostility might never go away and can even make it difficult for you to do business with other potential partners or clients later on.

An arbitration, however, offers a more relaxed kind of environment. While there’s conflict, it’s much easier to manage without extreme hostility like in a court proceeding. Both parties will need to cooperate with each other to reach a mutual agreement, resulting in less hostility and allowing both parties to keep their reputation intact.

Conclusion

No one wants a conflict with their business partners. However, when it does happen, opting for an arbitration allows both parties to avoid the court and have a more peaceful resolution of their disputes.