The number of dispute cases among business partners is increasing which is risking the firms as well. This brings in a lot of challenges for professional firms as they risk their whole finances in order to raise a firm. During the partnership disputes after company formation, most of the times, the companies get damaged because none of the parties seems to be interested in solving the matters. This worsens the problems even more.
We all are aware of the fact that whenever there is any dispute, all that happens is loss and nothing else. Almost all of the partnership disputes harm the companies to a huge extent. This not only escalates the damaging process of the companies but also destroy them completely.
Conflicts and Disputes in a Partnership Business
The model of the partnership business is very challenging for many areas of business management. Be it running and managing the business itself through responsibilities, decision making, investments and profit sharing, and personal and professional contributions of partners, at any level, in the business, for partnership business it is not as swift as in solely owned business.
The difference in understandings, intellects, intents, behaviors and many other personality traits among the partners in a business can form foundations to trigger a conflict or initiate a dispute in business. The most common disputes that can occur in a partnership business would be:
- Financial disputes
- Income disputes
- Authority disputes
- Workload disputes
- Business objective disputes of Conflict of Interests
Unless pre and post cautions are not taken to help reduce the occurrence of such partnership disputes, there will remain a chance for a business to suffer due to such business disputes.
Using Audit Services to avoid and settle Disputes
In order to resolve any conflict between the parties, it is vital to gather all the facts and figures to identify reasons causing disputes. This will not just help by identifying the cause of the disputes but the factors that caused it and identifying any loopholes as well as culprits if any. Eventually, this practice will lead to justifying the actions of those who are at the right end and can help suggest how the identified issues can be rectified to resolve the conflicts.
If not more than all this, none the less is actually the role of an auditor and the audit process itself. Just like any other operational and managing process, auditing a partnership business is also very challenging but is without a doubt the most beneficial activity to control and resolve business conflicts among partners.
Auditing a Partnership Business
In a conflict, the partners must get the help of auditors. It is very true that a business does not require an audit just to fulfill the different requirements of the government authorities and for compliance with their regulations. A business can perform an internal or external audit depending on the need of the business. An unbiased external audit can help resolve any dispute that partners in a business may have.
Some of the aspects of auditing a partnership business that can also benefit in dispute resolutions are,
- An audit can provide an unbiased and impartial report to reflect the actual financial position and details of the firm through analyzing financial statements.
- An audit process enforces a business to maintain transparent financial accounts and a complete trail of all financial investments and withdrawals according to the definitions of the partnership agreement.
- There can be different kinds of partnership structures in business. An audit authenticates the settlement of accounts between the partners. The audit report will provide the bases for the partners in a business to understand and claim their rightful share.
- It is also the audit that will help the partners to settle their shares and make their claims in the times when an existing partner exit or a new enters. Similarly, the partners will be assisted by the audit without any conflict when closing or selling the business or passing the inheritance of a partner after they die.
- Decision making for newer ventures and investments can be critical. Partners can have different opinions about such needs of the business especially when investments are made by the partners of loan is acquired through investment institutions. The audit process of business accounts can help the partners to have all the reasoning and facts to come up with a common decision in favor of business.
- The role of an auditor is not just limited to analyze financial statements but also perform analysis of partnership deed to make sure it defines all the prospects necessary to defend the rights of partners in a business to be identified in the time of possible conflict and resolve it with ease.
The auditor must analyze the terms of the agreement among partners on the basis of the following aspects to protect the rights of all the partners:
- Nature and type of business activity.
- What will be the fiscal calendar of the business?
- What investments are made by each partner as their share of the capital in the business?
- What are the decided terms of profit sharing among the partners?
- Defined rates of interest on capital investment and withdrawals.
- Eligibility of partners to acquire any loans from the business and defined interest rates.
- Definition of any commissions, salaries, and remunerations for partners if any.
- Authority of partners to borrow any finances from the business.
- Grounds for evaluation of goodwill and its impact in the books of accounts.
- Terms for the settlement of accounts when closing a business or terminating the agreement.
- Any confinements on the use of powers by any or all the partners in defined situations.
Such provisions being analyzed and audited in a partnership agreement will reduce the risk of any conflict between partners in a business or will define basis to the resolution for any disputes if occurred.
Auditing service for partnership business is not at all an easy affair. Dealing impartially and without losing credibility with all the partners in a business requires a lot of experience for auditors. With the right exposure, the auditors can save partnering relationship to fall into conflicts and help business from any jeopardy due to partnership disputes.
Either you are looking to establish a partnership business or already have one, an unbiased audit is a must-have service.