When you get into a business partnership with another person, both parties should sign a formal partnership agreement. The primary goal of a partnership agreement is to stipulate each party’s rights and obligations. It also outlines what will happen in the event of a dispute.
Unfortunately, partnership disputes are not uncommon. One or both parties may violate some of the provisions of the partnership agreement. And as with other legal agreements, a breach of a partnership agreement is a big deal, especially if it results in financial losses to the business.
Why breaches happen
Here are some of the reasons breaches can occur:
- Ambiguities in the partnership contract – If a partnership contract is not clear, parties can misinterpret its provisions. Consequently, this may lead to disputes.
- Misappropriation of business finances – Unscrupulous expenditure of the business’ funds is likely to lead to disputes.
- Overreaching responsibilities – When a partner abuses their authority, like making business decisions without involving the other party, a dispute is bound to happen.
So what remedies can you explore?
As a standard measure, it is important that you include a dispute resolution clause in a partnership agreement. That said, here are some of the remedies you may consider when a partner violates the partnership agreement:
- File a breach of partnership or fiduciary duties claim – If a partner violates the partnership agreement, you may sue them for breach of contract. Depending on the nature of the violation, you may sue them for acting in bad faith. For instance, if they acted unethically, you may sue them for breach of their fiduciary duties.
- Negotiate an out-of-court settlement – Not all partnership disputes belong in the courtroom. If the breaching party is remorseful and ready to own up to their actions, you may settle the dispute out of court and keep any compensation amounts confidential.
Learning more about California business law can help you safeguard your rights and interests if handling a breach of partnership.