Operating agreement, operating agreement, operating agreement.

When it comes down to legal disputes between business partners, it all comes down to what was written (and the legal interpretation of what’s) in your operating agreement.

A good way to have lawsuits thrown out of court is to have a clause in the agreement that makes litigation impossibile by specifying that legal disputes will be resolved via arbitration. Arbitration is good, because it’s a lot less expensive than litigation, plus it takes a lot less time and is usually more fair and impartial to one side (the side with the best lawyer). You walk in to an arbitrator’s office, both sides get to explain their sides separately. The mediator at the arbitrator’s office will address concerns that your partner has with you (and that you have with them) and you get a chance to argue without being interrupted by a lawyer yelling “Hearsay”, “objection”, or something ridiculous like that. Best part is: everything is resolved within a day or two and is legally binding… and typically, like I said, much more fair than most other options out there.

Don’t believe an operating agreement’s clause can prevent a lawsuit? Here’s an exempt from the American Bar Association’s website:

in Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002), the parties agreed to arbitrate any dispute “arising out of or in connection with” their agreement. The Delaware Supreme Court held that the parties had “signaled an intent to arbitrate all possible claims that touch on the rights set forth in their contract.” Language such as “all disputes arising out of the operating agreement are subject to arbitration” or “any dispute or controversy arising under this operating agreement shall be submitted to binding arbitration” is equally effective in evincing the parties’ intent to submit all of their disputes to arbitration

Here’s a great clause to include in your agreement:

In the event a dispute shall arise between the parties to this [contract, lease, etc.], it is hereby agreed that the dispute shall be referred to [one of the following choices: (1)designate a specific USA&M office or alternate service by agreement of the parties; (2) provide a method of selecting the arbitrator and situs of the hearing, such as “from the county wherein the manufacturing plant is located”; or for multi-jurisdictional disputes (3) insert “a USA&M office to be designated by USA&M National Headquarters”] for arbitration in accordance with the applicable United States Arbitration and Mediation Rules of Arbitration. The arbitrator’s decision shall be final and legally binding and judgment may be entered thereon.

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