How to Deal with Breach of Partnership Agreements

By: Mesriani Law Group | Posted: 10th August 2009

Not all business partnerships pan out the way the partners (owners) hoped it would. Partnerships are actually a lot like marriage and sometimes marriages just do not work out.

Naturally, there are conflicts and disputes that arise that have to be dealt with by the partnership. The most common cause of conflict between partners is breach of partnership agreements.

A partner can commit a breach of partnership agreement against the business itself or with third party dealings.

• Against the company – A breach of contract against the company or the partnership itself happens when the offending party fails to comply with the terms set by the signed partnership agreement.

• Against third party – This refers to a breach of contract against other entities outside the partnership. This could be with a supplier, manufacturer or an independent contractor. If the offending partner made deals with a third party and does not follow through or comply with the terms of the deal then the whole partnership can be liable for that partner’s actions.
Sometimes, the only solution to these types of problem is to terminate your relationship with that partner.

However, expelling a partner is difficult. In doing so, you may also be sued for breach of partnership agreement.

Here are some conditions where terminating a partner may be a breach of partnership agreement:

• Bad faith expulsions – Courts prohibits partners from being expelled if he/she can show that the partners have no just cause in their action even if there is an expulsion clause in the partnership agreement.

• Expulsions because of discrimination – The law prohibits expulsions as a result of discrimination based on age, disability, sex, race, religion and national origin.

• Expulsion before set duration – Most partnership agreements have a set duration of how long a partnership is effective. Expelling a partner before that set duration ends may constitute as a breach of agreement.
To avoid problems, here are some alternative actions that the other partners can take if one of the partners is no longer acting for the best of the company.
• Initiate a buyout – The partnership can offer the said partner a decent amount of money for him to leave the business and avoid legal actions.

• Transfer interest to new partner – This can be a win-win situation for everyone involved. If the said partner agrees to sell his/her interest to a third party, then the partnership have successfully terminated their relationship with the said partner without losing any money while the unhappy partner was compensated for his shares in the company.

• Change the profit structure – Profit sharing should not always be equal, it just have to be fair. If one of the partners is not contributing as much as the other partners then it is only right that he/she receive less as well.

• Dissolve the partnership – Most partnerships that do not work out end up dissolving the company where the assets are liquidated. The proceeds are then shared y the partners and then go their separate ways.


Visit our website to learn more about breach of partnership. Call us toll free for legal assistance.
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Tags: third party, entities, bad faith, relationship, duration, independent contractor, partnership agreement, conflict, marriage, religion, conflicts, discrimination, national origin, breach of contract, business partnerships, expulsion