• Ric Armstrong

WHEN A PARTNERSHIP GOES WRONG, WHAT ARE THE OPTIONS?


When you partner with one or more other people to do business, you create a legal business partnership, one that is usually documented with a partnership agreement. When a partner violates the terms of that business relationship, it constitutes a breach of this agreement. What can you do to set things right when this occurs? Potential Legal Remedies.

Texas law provides legal actions you may take if a partner is found in breach of your agreement, some of which are subject to the terms of the agreement itself. These include:

• Dissolving the partnership. You can make the argument that if your business partner won’t keep the terms of your agreement, your partnership is void, and you can take steps to dissolve the partnership officially. If there are three or more partners, you may also move to expel the offending partner—but only if your partnership agreement provides for it.

• Suing for liability for breach. If you can demonstrate that the partner has done harm by failing to keep your agreement, you may be able to hold the partner legally liable for breach.

• Settlement agreement. If your partner broke the agreement due to a dispute, you may be able to resolve your differences on paper by negotiating a separate settlement agreement, which can also be legally binding.

Should You Take Legal Action?

Be advised that even if you have legal recourse for a breach of partnership agreement, you could set the stage for further animosity if you jump to pursue a legal remedy—not to mention possibly lengthy and costly court battles. Sometimes a meaningful conversation with an offending partner (perhaps with a mediator) can go a lot further toward settling your differences. In addition, if you take legal steps that aren’t specifically spelled out in your partnership agreement, you leave the door open for a countersuit, which can become protracted and expensive.

So our advice is not to rush to the courthouse until you first try working things out with a settlement. Negotiate the deal points first, if possible, then reduce it to an enforceable writing, assisted by legal counsel. In some cases, you may wind up with a new and better partnership agreement, with acceptable remedies built in. Worst case, you will have an opportunity to reduce the scope of disputed issues before resorting to the courthouse.