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What Do You Do When Business Partnerships Go Wrong

What Do You Do When Business Partnerships Go Wrong

When you and your partner first started your business, everything was going well. You were beginning an exciting new venture in your life, making money, and believing you were going to have a real impact on the world. However, things went south, and now you’re wondering: what do you do when a business partnership goes wrong? 

If you need to dissolve a business partnership or have any other business needs, then get in touch with Robin D. Perry. The Law Offices of Robin D. Perry & Associates provide vigorous representation to clients and are a goal-oriented and values-driven firm. We develop creative strategies to win every case, every time and are confident we can help you with your business partnership case. Reach out to us today to schedule a consultation. 

Reasons to Take Legal Action Against a Business Partner

When you and your business partner have a dispute, you might have legitimate reasons to sue them. One of the common reasons that people sue their business partner is because they breached a partnership agreement. As long as you have a partnership agreement in place, then this could be valid. A good partnership agreement will have clauses in place that show what sort of action will occur should one of the partners breach it. Then, if your partner fixes the breach that they caused, you won’t have to file a lawsuit. But if your partner refuses to fix it, then you may have the grounds to establish a lawsuit.

Another reason to take legal action would be if your partner was negligent. This means that your partner had a reasonable duty of care, they breached that duty of care, and as a result, it caused harm and applicable damages to your partnership.

If your business partner engaged in criminal activity – for example, they laundered the business’ funds – then that would count as a reason to sue them as well. They would face separate criminal charges aside from the civil lawsuit you’d bring forth.

If your partner abandons the business, then this could be considered a breach of fiduciary duty. And if they use the intellectual property rights of the business for their personal gain, you could potentially sue them.

Do You Have to Sue?

You don’t necessarily need to sue your business partner in order to reach an agreement. For instance, if you have an expulsion clause in your partnership agreement, you may have the right to expel your partner for the breach. If you don’t have an expulsion clause, then you may have to dissolve the partnership. As long as you are sure that your partner breached the agreement, then you can use the expulsion clause to resolve the situation.

You can also hire an arbitrator or mediator to help you work out the dispute. This may not work, however, if your partner is especially combative and doesn’t want to reach an agreement. This will only work if you and your partner are willing to sit down and listen to one another.

A settlement could be the best way to move forward. Perhaps you and your partner agree to dissolve your partnership and they will pay you a certain amount of money. Then, you won’t have to go through litigation and you could save time and money.

No matter what route you take, it’s best to hire a business advising attorney who has worked on partnership cases in the past and has the results to show for it.

In addition, if you’re just doing research on business partnerships gone wrong because you want to go into partnership with someone, you’re going to need to hire a business advising attorney to help you anyway.

Establishing a Partnership

Before you go into partnership with someone, you should get everything in writing, even if you’re working with your best friend or a family member. This will ensure that should any problems arise, you both will be protected and your business will have the best chance of thriving.

It’s always advisable to hire a business attorney who can help you come up with an agreement. That way, you’ll guarantee that everything in it is legal and binding. If you create a document yourself, you may forget important caveats to include and you could end up harming your business.

You’ll need to spell out how you and your partner are both going to contribute to the business and what percentage of ownership you each have.

Your partnership agreement should include the name of your partnership and how you and your partner will divide your profits, losses, and draws. For instance, you can decide to divide things equally or based on the percentage of an ownership you have in the business.

You’ll also have to include what should happen if one partner leaves the partnership or they end up passing away.

Partnership vs. LLC

Note that a partnership is different from an LLC (limited liability company). Partners are liable for business debts of the partnership, while in an LLC, the owners are not responsible for the business’ debts and liabilities. They both provide pass-through taxation, so business owners in an LLC or partnership will report income or losses on their individual tax returns.

Just like with a partnership, LLC members should come up with an agreement – called an operating agreement – when first starting their business. If the operating agreement says that members can be held liable to each other for errors, then they can bring lawsuits against one another. But if members are not held liable to each other under the operating agreement, then typically, they won’t be able to take any sort of legal action should things go wrong.

How a Business Advising Attorney Can Help You

Aside from drafting an agreement for your partnership or LLC and representing you should your partner do something wrong, a business advising attorney can help you in numerous ways.

They can provide you with legal advice when it comes to hiring and firing employees, guaranteeing that you’re upholding relevant laws when it comes to things like minimum wage, meal breaks, and overtime and filling out paperwork correctly. They can also help you with creating an employee handbook.

They’ll make sure all your documents are in order, like contracts with your clients and your suppliers, and assist you with your paperwork for insurance policies and licenses that may be required to operate your business.

Just meeting with a business advising attorney a few times can drastically change the way you handle your business and set you up for success. And when you grow bigger, you can always hire them as a consultant as needed to help you along. 

Get in Touch With Robin D. Perry & Associates

If you need a business advising attorney for your partnership, LLC, or any other type of business, then it’s time to get in touch with the Law Offices of Robin D. Perry & Associates today. No matter what, we will fight on your behalf during your time of need. Call us at 562-216-2944 or contact us on our website for a free consultation.

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