Business partners generally want to keep their company’s operating costs as low as possible. They also need to preserve an amicable work relationship so that they can work together effectively. They typically don’t want to waste time and money going to court over a disagreement.
Unfortunately, sometimes business partners find themselves at odds with one another and unable to resolve the matter on their own. Partnership disputes can strain working relationships, change the culture within the company and reduce how profitable the organization is. One partner may decide to take legal action against the other, which can further disrupt company operations and damage the working relationship the two have.
What types of scenarios may lead to one business partner taking legal action against the other?
A breach of fiduciary duty
Business partners have an obligation to one another and to the company that they run. When acting in a professional capacity, people in leadership roles, including partners with an ownership interest, should prioritize the best interests of the company, not their own enrichment.
That fiduciary duty exists outside of any promises the partners may have made to one another. In scenarios where one partner has caused significant economic damage to the company through incompetence or financial misconduct, a lawsuit could help address the harm caused and recover the financial impact of the misconduct.
A breach of contractual obligations
Business partners typically sign thorough contracts with one another that clarify their expectations for the company and their working relationship. They each commit to certain investments in the company, including how many hours they work, the responsibilities they fulfill and how much capital they invest.
If one partner doesn’t work full-time for the business, if they fail to make promised investments or if they otherwise breach their contractual obligations, a lawsuit could help address their defaults. Litigation could result in the courts either enforcing the agreement or imposing penalties for the violation of the contract.
In many cases, partnership disputes that lead to litigation may force partners to reevaluate their decision to run a business together. A buyout might be necessary. Other times, the partners may dissolve the business they started together and explore other opportunities on their own.
Reviewing documentation and written agreements with a skilled legal team can be the first step towards successful business litigation. Legal action is often the best solution when a dispute between partners spirals out of control and threatens the company that they run together.