A business partnership exists when two or more parties work together to conduct business. No matter how many 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 many types of partnerships and help clients big and small navigate disputes.
Before a partnership is formed, it is wise to discuss roles, responsibilities, and finances to establish common-sense rules for solving problems. Most businesses eventually end and it is also wise to explore how the partners will eventually exit the partnership or dissolve the company. If a conflict you didn’t plan for does come up, alternative dispute resolution, like mediation or arbitration, should be explored to resolve the issue and save the business. In some instances, after every other option is exhausted, litigation may be necessary to resolve the conflict through the legal system.
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: When a partner steals from the business–whether funds, physical items, or intellectual property–it is a violation of the partnership and abuse of power.
Fraud: If a partner misrepresents himself or herself, misrepresents 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: When a partner wants to leave the partnership or partners want one member to leave, restructing (often known as a business divorce) may be the only option. Navigating the relationship aspect and 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, non-compete agreements often protect the business’s clients from being poached. If the agreement 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 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 is made, paperwork must be filed with the appropriate government agencies, and licenses or permits must be canceled. Business owners must make sure all debts are settled and notify their vendors and customers. Any remaining assets or profits will need to be divided.
If you see the warning signs of a partnership dispute, call the business litigation attorneys of Martin Cukjati & Tom, LLP 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 your interests will be well represented in court. Contact us today at 210-223-2627 to discuss your partnership dispute.