Partnerships can succeed in business when all partners work well together to achieve their company’s goals. However, a partner’s mismanagement or misconduct can lead you or your company to potentially damaging litigation. For example, a partner may breach their duties and obligations to their fellow partners or the business or cause the company to breach its legal options to other parties. Knowing your options and the steps to take when your partner’s conduct forces litigation can help protect your and your business’s interests.
Common Reasons for Litigation Involving Business Partnerships
Here are some common reasons you might need to pursue litigation against your business partner:
- Breach of fiduciary duties/duties of loyalty: A business partner may breach their fiduciary duties or duty of loyalty to your business partnership by engaging in misconduct, such as usurping business opportunities or engaging in self-dealing.
- Breach of contracts: Your business partner may trigger litigation by breaching your partnership agreement or causing your company to breach its contracts with other parties.
- Unauthorized actions taken on behalf of the business: A partner’s decision to take unauthorized actions on behalf of the company, such as binding the business to contracts without the knowledge or consent of the other partners, can lead to potentially disastrous legal consequences.
- Disputes over business operations: Partners may end up in litigation if they reach an impasse over the company’s direction or specific strategic decisions.
Your Legal Options When Litigation Becomes Necessary
Are you or your company facing the prospect of a legal dispute or litigation with or because of a business partner? If so, you and your company may have various avenues to resolve the dispute. First, you or your company may pursue alternative dispute resolution, such as negotiation, mediation, or arbitration. Depending on the basis of the dispute, you or your company may have a contractual obligation to do so. Alternative dispute resolution can help you and your company resolve a legal dispute more quickly and usually at a lower cost than court litigation. ADR also allows you and your business to keep the dispute out of the public record, which can help your company avoid negative consequences such as bad press or damaged relationships with customers, suppliers, or affiliates.
Depending on the circumstances, you and your company may need to go to court to resolve a dispute triggered by a business partner’s actions. Litigation may entitle you or your company to seek financial compensation for harmful conduct by a business partner or an injunction to stop your partner from continuing that conduct.
In extreme cases, you may need to force a buyout of your business partner or seek dissolution of the partnership when a dispute has made it impractical to continue carrying on the partnership’s business.
Steps to Take Before Litigation Begins
Here are some proactive steps you can take to put yourself and your company in a more favorable position before litigation begins:
- Review your partnership agreement to understand your legal options for resolving disputes. Confirm whether a dispute falls within the scope of an alternative dispute resolution agreement and what relief you may pursue against your partner. These could include obtaining indemnification, forcing a buyout, or dissolving the partnership.
- Investigate and document the alleged breach or misconduct. Collect evidence such as emails/text messages, contracts, or financial/accounting records.
- Consult an experienced business litigation attorney to evaluate whether you or your business may have a viable case against your partner.
Contact a Business Litigation Attorney Today
When you or your business face litigation due to a partner’s decisions or conduct, you need experienced legal counsel to guide you through your rights and options. Contact Levy Goldenberg LLP today for a confidential consultation with a commercial litigation lawyer to discuss your options for protecting the business you’ve worked so hard to build.