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What to do if a business partner breaches a contract

On Behalf of | Feb 6, 2023 | Business Formation & Planning

A legal partnership is made when a business wants to work with one or more parties. During this partnership, profit and losses are shared and each party’s obligations are outlined. These agreements are sometimes made verbally, which is never ideal. To enforce each party’s responsibilities, businesses should consider making a written partnership agreement.

A written partnership agreement isn’t just important to outline each party’s duty but it can be used to outline what would happen if a partner breached their contract. This is often necessary because breaches do happen, purposefully and unexpectedly. 

To understand what you can do if a partner breaches a contract, you should first consider what elements are included in your agreement. Here’s what you should consider:

What elements are in your partnership agreement?

Each party is looking to get something from the partnership. What you want for your business may not be exactly what your partner wants. As such, you may need to consider the following questions:

  • Who’s contributing the most to the partnership?
  • Will there be a single or ongoing financial obligation?
  • What kind of partnership will this be: general, limited, limited liability or another?
  • What rights and responsibilities does each party hold?
  • Will there be future partners?
  • What allows someone to be a partner?
  • Who’s entitled to vote on decisions?

 Once you’ve figured out most of these questions, then you can ask the bigger questions: What constitutes a partnership breach? A breach can happen for a multitude of reasons and the above questions may help decide when a breach occurs.

For example, there may be a breach if there was an unjust expulsion from the company. There must be a reason for a party’s removal from the company otherwise it may be considered a bad-faith expulsion. 

Your company may even believe a breach occurred because trade secrets were divulged. Trade secrets are important to many businesses. After all, many businesses wouldn’t be successful if they didn’t have something special.

After you’ve made a business partnership, you should understand your legal rights if you believe there was a breach of contract.