When Business Partners Turn Against You: Legal Options for Partnership Disputes
When you decide to start a business with a partner, it can feel like a fantastic idea. At the beginning, you might have the same vision and mutual respect. But what happens when the foundation starts to crack? Maybe your partner is no longer contributing to the business (financially or effort-wise). Or perhaps they are misusing company funds, making decisions without consulting you, or even trying to get rid of you completely. Partnership disputes can be incredibly stressful and pose a real threat to everything you have worked so hard to establish. At Cali Law, we understand just how stressful these situations can be. If you are in this situation, the good news is that you have legal options to protect your rights and what you have worked so hard to build.
Common Causes of Partnership Dispute
Here are some of the most common causes of these disputes;
Breach of Contract: Each partner has a legal obligation to fulfill their contractual obligations. If a partner, for instance, starts a competing business, contrary to what the contract stipulates, it may cause disputes.
Breach of Fiduciary Duty: This is when one partner fails to act in the best interest of the partnership, for instance, if they misuse company assets.
Unequal Contribution: One partner might feel they are doing more than the other, including financially, time-wise, and effort-wise.
Differing Vision and Goals: For example, one partner may want to expand aggressively, while the other prefers expanding slowly.
Financial Disputes: Disagreements can arise over profit distribution, business expenses, capital expenses, or when one partner improperly takes business money for personal use.
Lack of Transparency: If one partner is excluded from vital information or business operations, it can create significant tension.
Unclear Roles and Responsibilities: If it is unclear who should do what, confusion can arise, which can eventually lead to conflict.
These disputes can strain the relationship between partners and result in serious financial and legal consequences for the business. That is why it is crucial to understand your legal options.
First Option: Communication and Alternative Dispute Resolution
When a partnership dispute arises, the first step should not be rushing to court. Sometimes, a disagreement can be resolved by simply communicating. Start by communicating openly with your partner and going over options for fixing the issue.
If talking it out does not work, you might want to consider alternative dispute resolution (ADR). ADR methods help resolve conflicts outside of court and include negotiation, mediation, and arbitration. Mediation, for instance, involves bringing in a neutral third party to help guide you and your partner toward a solution.
In Pennsylvania, courts actually encourage disputing parties to attempt ADR before heading to court.
Legal Steps When Communication and ADR Fail
When communication breaks down and ADR is unsuccessful, the next step may be to explore formal legal remedies available under Pennsylvania law. These options can help you protect your rights, recover losses, and in some cases, even enable you to continue with business without your current partner.
1. Breach of Contract Lawsuit
If your partner has violated the terms of the agreement, you can file a breach of contract lawsuit. Some of the remedies you can recover in a breach of contract lawsuit include;
Compensatory damages
Liquidated damages
Specific performance
Consequential damages
2. Expulsion and Buyout
If you and your partner no longer align, you may be able to seek their removal from the business. You may also have the option of buying out their share. This can allow you to take full control of the business and continue without the disruptive partner.
3. Business Litigation
If the other paths do not work, litigation may be necessary. Any issue can be litigated, from breach of contract to mismanagement. However, before proceeding to trial, you should note that this option can be complex, lengthy, and costly. But if it is the only way to protect your investment, it may be worth pursuing.
4. Dissolution of the Partnership
If continuing is not an option, the only option left may be to dissolve the business. This process involves paying debts, dividing assets, and winding down operations.
How Do Courts Handle Partnership Disputes?
In Pennsylvania, courts typically;
Review the partnership agreement, if there is one
Assess each partner’s actions and contributions
Determine if there was a breach of contractual or fiduciary duty
Decide on suitable remedies
Since partnership disputes often involve significant financial stakes, having skilled representation is vital for achieving the best possible outcome.
A Vital Step: Review the Agreement
While Pennsylvania law does not mandate formal written partnership agreements, having such an agreement is highly recommended. Your agreement is essentially the “rulebook” for your partnership. If you have a partnership agreement, it should outline, among other things;
Each party’s roles and responsibilities
How profits and losses are shared
How disputes should be resolved
If your agreement outlines how disputes should be resolved, you are required to follow the procedure specified in the contract. On the other hand, if there isn’t a written agreement, state law may mandate how you should handle the dispute, which may not work in your favor. When there is a well-drafted, legally binding contract, it takes precedence over the state’s default rules.
For example, a dispute resolution clause in a partnership agreement may mandate mediation or arbitration or require formal negotiation. In such a case, you will have to follow what is written in the agreement.
When a trusted business partner turns against you, it can feel like your entire world is crumbling. The stress, financial risks, and uncertainty can leave you feeling powerless. However, you have legal options. In Pennsylvania, there are various ways of resolving conflicts between business partners and protecting the business, from mediation and arbitration to litigation. At Cali Law, we understand how overwhelming these situations can be, and we are here to help. Our team has experience handling complex business disputes. If you are facing a partnership dispute, do not wait until the problem gets worse. Contact ourbusiness law team todayto schedule a consultation and take the first step toward protecting your future.
