Entering into a business partnership requires a significant amount of trust. Unfortunately, it’s not uncommon for relationships to dramatically change over time. In extreme situations, it might become necessary to sue your business partner to protect your investment and the company itself.
Common grounds for legal action
All partnerships begin on a foundation of trust. While disagreements are a normal part of running a company, there are times when certain actions cross the line of trust and legal liability. Situations that may lead to legal action include:
- Fraud: The partner may misrepresent profits, debts or other financial information.
- Breach of fiduciary duty: A partner might breach the legal obligation they have to work for the best interests of the business.
- Embezzlement of assets: Legal action may be appropriate when a partner improperly takes company funds or assets for personal use.
- Negligence: A lawsuit is justified when the partner fails to do their duty properly and threatens the smooth operation of the company.
- Breach of contract: When any terms in the contract are broken, the victim of that breach can sue the other party.
Before suing a business partner, they should first review the company’s governing documents, such as a partnership agreement or shareholder agreement. Doing so helps to understand whether there are specific clauses dictating how conflicts should be resolved. With proper legal guidance, co-owners can then check whether alternative options such as mediation or arbitration are needed before proceeding.
Protect your assets and take action
Taking legal action against a partner is a very serious decision that almost always signals the end of a business relationship. Business partner disputes are rarely simple. However, protecting assets and safeguarding oneself from legal liability should be the top priority.
