My partner has breached our partnership agreement. What should I do?

On Behalf of | Feb 13, 2024 | BUSINESS & COMMERCIAL LAW - Contract Disputes

From sharing responsibilities to growing assets and operational capital, entrepreneurs get into business partnerships for a variety of reasons. With the right partner, you can build a stronger and more profitable business.

Unfortunately, a business partnership, just like any other venture, comes with its share of challenges. It’s not uncommon for disputes to arise between partners. But what happens if a particularly consequential dispute in question has something to do with your partner failing to live up to the terms of the partnership agreement?

Understanding partnership agreements

Basically, a partnership agreement is a binding contract that defines how a business will be run, each party’s entitlements and responsibilities, profit and loss sharing as well as dispute resolution among other provisions. If a partner fails to meet their contracted obligation, they are deemed to have breached the agreement. This can take the following forms:

  • Material breach of the agreement
  • Minor breach of the agreement
  • Anticipatory breach of the agreement
  • Actual breach of the agreement

As you can imagine, a breach of a partnership contract can greatly impact a business. As such, it’s important that you take appropriate steps to respond to the breach in question. Here are some of the actions you can consider following a breach of the partnership agreement:

  • You may reach a settlement – If the breach is minor, you may mediate, get yourselves back on the same page and focus on growing your business.
  • You may terminate the agreement – Some breaches, however, are serious. An example of this is theft or fraud. A fraudulent or dishonest partner is a huge risk. In this case, it makes sense to terminate the partnership and go your separate ways.
  • You may sue the partner – Sometimes, a material breach of the agreement can result in loss to the business. In this case, the law permits you to sue the partner in question for damages.

It takes two to tango. However, if your partner is breaching a partnership agreement, you need to act. Understanding your legal obligations and entitlements in the wake of a breach can be a great starting point. Seeking personalized legal guidance is a good way to gain this clarity.