Partnership Litigation: Can You Sue Your Business Partner?
When business partnerships dissolve, the idea of partnership litigation can be intimidating. You may wonder what the quickest and cleanest way is to resolve your company's issue. Certain situations are more likely to lead to partnership litigation. Learn what to do when your business is facing litigation.
What Is A Partnership Dispute Or Lawsuit?
A partnership dispute concerns the owners of a business. If you cannot resolve the dispute in an acceptable manner, then one owner may make a legal claim against the other owner or owners, called partnership dispute litigation.
Business partnership litigation cases are never enjoyable, and often, typically no one wants matters to escalate to a trial. However, if your business partner is acting in an unreasonable or illegal manner, a partnership lawsuit may be your best option. Sometimes litigation is necessary to prevent illegal activity from tarnishing your role in the business.
Of course, partnership disputes do not always need to escalate to the courtroom. You can use many processes to resolve disputes. Some processes may even be written into your business's legal papers, such as operating agreements. Some standard processes to resolve disputes include types of alternative dispute resolution (ADR), like:
- Mediation
- Arbitration
- Negotiation
It is sometimes advisable to try to resolve issues via ADR first. However, in some situations, business partnership litigation may be your first option. Few people expect that they will need to resort to a partnership dispute lawsuit. However, this is precisely why every company needs a business litigation lawyer.
What Situations Can Lead To Business Partnership Litigation?
There are plenty of situations that can lead to business partnership litigation. Here are some of the most common situations that can lead to a business lawsuit:
Abandonment
Abandonment becomes an issue when the actions of one business partner mean they effectively left the partnership without proper dissolution of the business. Depending on the terms of your company agreement, you may be entitled to legal action to protect your rights.
Breach Of Fiduciary Duty
You and the other business owners have specific fiduciary duties, and each has legal obligations to uphold these duties as outlined in your company's contracts. Some examples of fiduciary duty violations include:
- Charging personal expenses to the company
- Competing with the partnership
- Disproportionate profit distribution
Dissolution Of The Partnership
Partnership dissolutions do not necessarily involve a legally forced removal of a partner from the business. Instead, these dissolutions can arise for various reasons, like:
- One partner simply wants to take their vision in another direction
- A partner is no longer able to participate to the extent outlined in the agreement
- A partner passes away
- Partner conflict
However, when disagreements are the reason for the dissolution, it could involve issues like how the assets are divided or buyout provisions.
Expulsion Of A Partner
Some partnerships may find it necessary to expel one of the other partners. The current partnership agreement often governs this action. The reasons for the expulsion of a partner are usually quite serious and may involve issues like:
- Filing for bankruptcy
- Facing criminal charges or convictions
- Serious professional misconduct
- Unwillingness to step down due to serious issues, like cognitive disabilities
Negligence
If your partner has acted negligently, you may be able to sue them. In these cases, you must generally be able to show that your partner acted unreasonably under the circumstances and that your business suffered harm due to these actions.
Partnership Contract Violations
Contract violations are another situation that can lead to business partnership litigation. Partnership agreements are legally binding documents. A breach of contract can open the business up to unscrupulous behavior. These contracts often define important legal issues within the company, like:
- Distribution of profits
- Liability
- Partner responsibilities
Partnership agreements are often not legally required to start a business, but having one can help your business run smoothly.
What Steps Should You Take When Undergoing A Business Divorce?
When undergoing a business partnership dissolution, there are specific steps you should take. These steps can help you protect your business and your interests. A business litigation attorney can help you with the following steps.
Define Your Business Goals And Ideal Outcome
You should define your business goals and articulate your ideal outcome. If your expectations are unrealistic, this can lead to a necessary conversation with your lawyer to help you set realistic goals and expectations. Sometimes business owners expect much more than they are entitled to.
Develop A Solid Business Litigation Game Plan
A solid business litigation game plan can help ensure you have all your bases covered and that all potential legal avenues have been explored. Once you understand the various legal options, you will be more empowered to choose the legal route that best serves your business goals. This should be the route that is most likely to lead to your ideal outcome. An experienced business litigation attorney will ensure you understand all the available options, that your plan is solid, and your expectations align with reality.
Understand And Plan For The Cost Of Business Litigation
The final step is understanding the cost of business litigation and accurately budgeting for it. Business litigation is not cheap, but sometimes it is necessary. Different legal options will carry differing price tags. If cost is a significant concern, exploring the various alternative dispute resolution methods may make sense before pursuing litigation. In other cases, quick litigation resolution may be the most value-conscious choice.
The Right Legal Team Will Have Your Back Every Step Of The Way
When partnership litigation strikes, you need someone you can trust. You need a business litigation professional who understands the optimal ways to resolve your business's conflict. When these issues arise, you can count on the legal team at King & Jones. With more than 40 years of experience in business partnership disputes, we are the attorneys you want in your corner. Contact us to learn more about how we can help your company.