Business Partnership Issues – Dispute Lawyers

Common Reasons for Partnership Issues / Disputes: If you find yourself amid a partnership disagreement, you cannot hope it will disappear. You must take action to protect your interests because you may be in a dispute that cannot be resolved.

There are numerous reasons why partners may disagree with each other, such as:

• One partner has breached the terms of an employment agreement
• A partner has failed to uphold their obligations to the partnership
• There are disagreements about how to conduct business
• Other partners may be dissatisfied with how one particular partner has acted in the name of the partnership
• The partners believe one partner has breached the terms of the partnership agreement
• A partner may have committed fraud or misappropriated assets of the partnership

Breach of Fiduciary Duty Is a Common Reason for Disputes

Crucially, each partner owes a fiduciary duty to the partnership as a whole and to their other partners. Fiduciary duties can be broken down into two main areas:

• Each partner owes a duty of care, which means they must use ordinary care in conducting business on behalf of the partnership and in performing their duties under the partnership agreement
• Each partner owes a duty of loyalty, which means they must prioritize the partnership’s interests over their own personal interests and avoid conflicts of interest.

When a partner breaches their fiduciary duty, they may be personally liable. In addition, other partners could be punished for one partner’s breach of this duty.

Partnership Disputes Can Lead to the Dissolution

One of the most common partnership disputes occurs when one or more partners decide they can no longer work together. This could lead to the partners dissolving the partnership. Dissolution could be an end in itself or a result of the partners no longer being able to make the business arrangement work.

Dissolution is often a remedy when some or all partners go to court, and a judge decides that the situation can no longer be salvaged and that the business arrangement should not continue.

How Partnership Disputes Are Decided

There are numerous things a court may look to when deciding a partnership dispute:

• The first thing the court will scrutinize is the partnership agreement that gives each partner their rights and obligations within the partnership
• The Texas Business Organizations Code has substantive legal requirements and procedures for partnerships
• A rich body of common law applies to partnership disputes. For example, the Restatement of the Law Third Agency provides many principles that courts will rely on when deciding litigation involving partnerships.

The Partnership Agreement Is Crucial in Any Dispute

If a partnership dispute goes to court, the judge would first look at the exact language of the partnership agreement. This document is a contract between the parties, and its terms are given legal effect. If there is no clause in the partnership agreement on point regarding the disputed issue(s), or if the language is ambiguous, the judge may look at external evidence to decide the dispute.

Each partnership agreement should have a dispute clause governing how individual disagreements are resolved. This clause would provide a resolution mechanism that details the steps the partners would need to take. Presumably, the partners would need to go through all the required steps before one could bring the matter to court.

The judge would then scrutinize each partner’s rights and obligations and any restrictions on their conduct. If the partnership agreement does not contain language, the judge could rely on it to rule on the disputes, or they may look to other legal principles.

Court or No Court

Here are some ways to resolve partnership disputes short of taking the case to court:

• Each partner could hire an attorney to communicate with the other partners’ attorneys to resolve issues.
• The partnership agreement may mandate that individual disputes be mediated first. Alternatively, the partners could opt for mediation on their own to help them work out their differences with the assistance of a neutral third party and remove some emotion from the picture.
• The partnership agreement may require the partners to participate in binding arbitration to resolve a dispute more cost-effectively than litigation.

Communicate for as Long as You Can

There is no clear answer on how to address a particular partnership dispute. Communication and action are the two most important things you can do when you disagree with your partner(s). If possible, you should remain in communication with the other partner or partners in the hope that you can resolve the disagreement without litigation. At the same time, you should be prepared to take action to protect your interests. The problems of the partnership can become your problem quickly due to how the law works.

Contact Paul N Jones Law Firm Today

An experienced commercial litigation attorney can review a situation and provide objective professional advice about the best action.

Business partners filing lawsuits over partnership disputes could seek the following legal remedies:

• Damages from the partner who breached the partnership agreement
• Expulsion of one or more partners from the partnership
• Enforcement of a buy-sell agreement to relieve a particular partner of their financial interest
• Dissolution of the partnership

The key is to contact us as soon as possible so you have the maximum number of legal options. Partnership disputes do not always have to happen, but you need to be prepared and take action in case they do.