A business partnership exists when two or more parties work together to conduct business. No matter how much groups of people like each other, conflicts can arise when dealing with the stress of running an organization. These partnership disputes can unsettle any organization and can spell disaster if not properly dealt with by those involved. A serious conflict can not only cause financial loss, but it can also cause reputational harm and the loss of trust of clients and employees. At Martin Cukjati & Tom, LLP we are familiar with the various types of partnerships and have helped clients big and small navigate related disputes.
Planning before a partnership is formed to clearly assign roles and responsibilities, as well setting out rules for solving problems, handling exiting the partnership, and dissolving the company can help alleviate a lot of potential headaches. If a conflict you didn’t plan for does come up, mediation or arbitration should be explored in an effort to fix the issue and save the partnership. In some instances, after all options are explored, litigation is necessary to resolve the conflict through the legal system.
We generally see partnership disputes often fall into some common areas:
- Breach of Contract: When a partnership is formed, a contract is usually drawn up to outline its terms. If one party violates the agreement, it is considered a breach of contract, and the other partner has legal recourse to hold the offender accountable. Generally, a lawsuit is filed to enforce compliance. Failing to fulfill financial obligations is often at the heart of these disputes.
- Unclear Roles and Responsibilities: It is important in any partnership to very specifically delineate who will handle what tasks and who has decision-making authority in certain areas. When there is a gray area around who handles what, it can lead to conflict, especially if a matter was not properly attended to that resulted in a loss to the partnership.
- Breach of Fiduciary Duty: Partners are supposed to act in a way that benefits the partnership. If, for example, one partner were to take away a business opportunity from the partnership and personally profit from it, that could be considered a breach of fiduciary duty.
- Business Asset Theft: If a partner steals from the business – whether funds, physical items, or intellectual property – that violates the partnership and is clearly an abuse of power.
- Fraud: If a partner misrepresents himself or herself or the business, or knowingly provides incorrect information, the other partner should confront them for defrauding the partnership, business, and/or potentially others. The fraudulent partner can cause serious damage through their actions and should be held accountable.
- Restructuring: Sometimes a partner wants to leave the partnership, or partners want one member to leave but that individual does not want to. Often known as a business divorce, navigating the relationship aspect as well as ownership decisions when a partner leaves can be rife with disagreements and legal help can be crucial to preserving the business.
- Non-Competes: If a partner does leave, many times a partnership will put a non-compete agreement in place for the exiting partner to protect the business’s clients from being poached. If this is violated, the remaining partners can take legal action.
As mentioned before, laying out the rules of a partnership and planning beforehand how to handle any of the above disputes can help mitigate disputes that do arise. If there is no way to resolve the dispute despite everyone’s best efforts, it may be time to dissolve the partnership, also known as partnership dissolution. This is the formal process of shuttering a business and ending the contract that created the partnership. This is a more involved process than many people realize. Owners must first agree that they do want to end the partnership, which can be difficult to navigate if some do not want it to end. Matters can be even more difficult if there are more than two partners. Once there is a decision to close, proper paperwork must be filed with the appropriate government agencies, as well as cancelling any licenses or permits. The business owners must make sure all debts are settled and notify their customers. Any remaining assets or profits will need to be divided.
San Antonio Partnership Dispute Law Firm
If you are seeing the warning signs of a partnership dispute, call the business litigation attorneys of Martin Cukjati & Tom, LLP as soon as possible to discuss your situation. Ultimately, we want to help you and your partners come to an agreement with as little friction as possible and to preserve your business. If litigation is required, we are adept and experienced at navigating the legal system and will make sure your interests are well represented in court. Contact us today at 210-223-2627 to discuss your partnership dispute.