Five Reasons You Need a Partnership Dispute Lawyer
No one enters into a business partnership planning on getting into a dispute with the other party, but like all relationships, business partnerships are subject to the usual pitfalls. Although I refer to partnership disputes in this article, all forms of closely held businesses, whether partnerships, LLCs, or corporations, are often treated similarly by the courts.
Businesses are works in progress, and issues that seem insignificant at the beginning may take on greater importance as the nature and goals of the business change over the years. Reasons for ending a partnership could be as simple as one party retiring or as serious as one party committing a criminal offense. No matter the justification, a qualified business litigation attorney can help end things as smoothly as possible. In most cases, partnership disputes are covered under the original partnership agreement. However, the termination of a partnership isn't always cut-and-dried, especially among those who may not have entered into a formal agreement at the start of their collaboration. As an additional complication, some agreements can be interpreted in a variety of ways. It's also important to note that aspects of partnership agreements that are in direct conflict with state laws will cause uncertainty in the parties’ relationship. For example, in many states, fiduciary obligations cannot be drafted out of agreements.
Here are common business disputes in which a partnership dispute lawyer can help when the time comes to move on from a business partnership.
1. Disagreements About Business Operations
Although business partners are generally on the same page when they're just starting out, disagreements sometimes arise among partners as the business evolves. Common partnership disputes include:
- What percentage of the profits should be reinvested
- How to manage employees
- What tasks to outsource and what tasks should be performed by in-house personnel
- What constitutes acceptable risk when it comes to business expansion strategies
It's also common for partners to develop differing big-picture visions over the course of time, which may affect anything from decisions on branding to overall company direction.
A comprehensive partnership agreement will have addressed the possibility of these issues arising at some future point and will provide guidelines for navigating closely held business disputes. It's common, however, for the initial agreement to be incomplete or for the individual parties to have different interpretations of the main points of the agreement, potentially necessitating the involvement of a partnership dispute lawyer in the future.
2. Fiduciary Duty Violations
Those engaged in business partnerships have fiduciary duties both to one another as well as to the business. These duties are usually based on a level of trust or are defined by case law and state statute, and can have legal repercussions if violated. Civil liability is the most common consequence of breaches of fiduciary duties.
Examples of fiduciary duty violations include:
- Disproportionate profit distribution
- Charging personal expenses to the firm
- Failure to disclose all profits
- Acting with gross negligence and recklessness
- Competing with the partnership
Lawyers for partnership disagreements can help injured parties recover compensation for lost income and potentially recover punitive damages as well.
3. Violations Of The Partnership Contract
Contract violations are specific to the partnership contract currently in place and are among the most common business disputes. Partnership contracts are legally binding documents that define issues such as liability, distribution of profits, and each partner's specific role within the company. These contracts are meant to protect the business from unscrupulous or self-serving behavior by either party. Although a partnership contract is typically not legally required to start a business, those who fail to have one in place will be subject to state statutes and case law in the event of conflict between partners.
Examples of common components of partnership contracts that are frequently violated include:
- Nondisclosure agreements: These prohibit the disclosure of confidential information gleaned in the process of engaging in business transactions.
- Noncompete agreements: These delineate specific prohibitions regarding parties' formation of a competing business.
Because partnership agreements play an important role in helping a business run smoothly, consulting an attorney to help draft the contract is recommended. Although this type of agreement is normally drafted at the beginning of the partnership, it can be drafted at any time during the business relationship.
4. Expulsion Of A Partner
Issues concerning expulsion of one of the partners are generally governed by the current partnership agreement and usually involve serious circumstances. Some of the common reasons for partnership expulsion include:
- Professional misconduct to the extent that it has the potential to harm the business
- Filing for bankruptcy
- Failure to meet the obligations defined in the partnership agreement or breaching the agreement entirely
- Being charged with or convicted of a criminal offense
Partnership expulsion typically involves complex litigation that requires the assistance of a partnership dispute attorney for best results.
5. Dissolution Of The Partnership
Partnership dissolutions differ from partnership expulsions because they don't involve legally forcing another party out of the partnership. These happen for a variety of reasons. In best-case scenarios, one of the partners simply decides that it's time to go in another direction, and the partners come to the common realization that it's time to part ways. Partnerships may also be dissolved when one of the parties passes away or becomes unable to participate in business operations as outlined by the original agreement.
However, conflicts and disagreements are often part of the picture as well, and dissolutions typically become more complex when the original partnership agreement doesn't cover procedures for terminating the partnership. Disputes that typically arise during the process of terminating a partnership include:
- How the assets are to be divided
- How the debts are to be paid
- Buyout provisions
- The value of each partner's share of the business
As with other legal issues involving partnerships, state law prevails in the absence of a legally binding partnership agreement.
Hire A Partnership Dispute Lawyer Through King & Jones
If you have experienced any of the above-mentioned issues, or are exploring your options for dissolving a partnership, King & Jones can help. With over 40 years of experience as a partnership dispute law firm, we take a personal interest in every case. Please feel free to contact us at your convenience for more information about how we can help you achieve your goals.