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Partnership disputes: What are the most common causes?

On Behalf of | Dec 30, 2021 | Business And Commercial Law |

New business partnerships often start with a sense of optimism about the future. As time passes, however, partnerships can break apart, and a partner may leave. This can damage the company, perhaps irreparably, leaving the remaining partners in financial difficulty for debts and liabilities. The departure may also damage the company’s reputation.

Many partnerships resolve disputes through negotiation, arbitration or other forms of dispute resolution, but filing a lawsuit against the partner may be the best or only option. Common grounds for a lawsuit include:

  • Contract breach: Any valid claim starts with a close reading of the partnership agreement. The formal partnership agreement outlines duties and obligations in detail. If they violated the terms of the valid contract, the remaining partner(s) could claim a breach of the partnership agreement.
  • Breach of fiduciary duty: Partners must look after the business and financial interests of the company, placing them above the personal financial interests of the partner.
  • Negligence: This means the partner did not act as a reasonable person would have under the same circumstances or that the partner’s actions harmed the business somehow.
  • Abandonment: Partnership agreements will contain details for properly dissolving the company if the partnership does not work out. There are also certain legal obligations for properly closing a business as well. Unless the contract allows it, a partner cannot simply walk away and leave others to handle the repercussions.

Using an operating agreement, LLCs have slightly different arrangements than a structured partnership. It may also indicate that partners in the LLC cannot file lawsuits against each other, instead outlining a method of arbitration for resolving disputes.

It is best to weigh the options carefully

Filing a lawsuit is a way to bring the parties together to resolve the matter once and for all. However, a court is a public forum where the details of the dispute can further damage the business. It also may be the case that the partner was within their legal right to leave the partnership. So, it is always a wise course of action to discuss a potential lawsuit with an attorney who handles business disputes before deciding a course of action.