A strong business partnership is like a well-oiled machine, driving the business toward success with mutual trust and shared goals. Partners rely on each other to make decisions that benefit the whole venture, and when this relationship functions well, it can lead to impressive achievements. However, even the sturdiest partnership can hit a rough patch where disputes arise. When they do, it’s crucial to discuss and resolve the cause of friction before it impacts the business. If the two sides cannot reconcile their differences, the dispute may require legal action.
Potential grounds for legal action
There are a wide range of reasons for filing a lawsuit, but four common grounds are:
- Breach of contract: When a partner fails to uphold their end of the partnership agreement, it can cause significant damage to the business. For example, if a partner was responsible for securing financing by a specific date and failed to do so, they may have breached the contract.
- Breach of fiduciary duty: Partners are legally obligated to act in the company and clients’ best interest. If a partner makes decisions that benefit themselves at the company’s expense, like diverting business opportunities to another company they own, this could constitute a breach of fiduciary duty.
- Fraud or misrepresentation: If a partner intentionally deceives others in the partnership for personal gain, this is grounds for legal action. An example could be a partner inflating the value of assets brought into the business to gain a larger share of profits.
- Theft or embezzlement: When a partner steals from the company, whether it’s money, property, or intellectual property, this is a clear violation of trust and the law. Embezzling funds to cover personal expenses is an all too common example.
The benefits of litigation
While suing a business partner can be a difficult decision, it sometimes becomes necessary to protect the interests of the business and its stakeholders. Litigation can recover losses, hold the offending partner accountable, and ultimately save the business from further harm. It can also set a precedent that safeguards the company from future issues, reinforcing the seriousness of the partnership’s obligations.
Don’t start without a plan
A strong business partnership is vital for success, but knowing when to take legal action can be just as important when things go awry. Recognizing the grounds for suing a partner and understanding the benefits of litigation can help ensure your business’s long-term health and prosperity.