A partnership agreement is a crucial document that serves as the foundation of a business relationship between two or more people. It governs how the business is operated and clearly defines each partner’s rights, responsibilities, and obligations. Unfortunately, it’s not uncommon for disputes to arise when a partner disregards the agreed-upon terms, whether by withholding profits, making unilateral decisions, or otherwise acting outside the scope of the agreement. If your business partner has failed to abide by the partnership agreement, it’s essential to understand the legal remedies available to protect your investment and the future of your company.
What Happens When a Partner Disregards a Partnership Agreement?
When a business partner disregards a partnership agreement, it can destabilize the company, disrupt day-to-day operations, and cause significant financial and operational strain. Importantly, a partnership agreement is a binding contract under New York State law. This means that when a partner ignores the terms or refuses to comply with them, they can be held liable for the resulting harm to the business or other partners.
Common partnership agreement violations can include the following:
- Refusing to distribute profits in accordance with the terms of the agreement
- Making major business decisions without the required consent
- Misusing company funds or assets
- Violating non-compete, non-solicitation, or confidentiality provisions
- Excluding other partners from management decisions
- Diverting business opportunities for personal gain
Depending on the terms of the agreement that were violated and the type of misconduct, an injured party may have several causes of action under New York law. These commonly include breach of contract, breach of fiduciary duty, or, in cases involving intentional deception, fraud.
The harmed partners may be able to seek monetary damages, disgorgement of profits, and an accounting, which requires a full review of the company’s financial records to determine what is owed and whether any funds were improperly diverted. In addition, courts may grant injunctive relief to prevent further violations of the agreement or order judicial dissolution in situations where the business partnership can no longer function effectively.
What to Do When a Business Partner Violates the Partnership Agreement
If your business partner has engaged in wrongful conduct that violates the terms of the partnership agreement, the first step is to review the document. The agreement should specify the procedures for resolving disputes between partners and how any breaches should be handled. It may also require the parties to attempt to resolve the dispute through negotiation, mediation, or arbitration before resorting to litigation.
The next step is to gather evidence supporting the misconduct claim. Evidence can include internal communications, e-mails, financial records, and documentation of business decisions that demonstrate the breach. Critically, ensure that all key digital records and communications are immediately preserved and backed up to prevent accidental or deliberate deletion.
From there, it’s best to discuss your legal rights, remedies, and options with a knowledgeable business litigation attorney. They can evaluate your case and determine the best course of action to safeguard your business and your interests. While some cases may be resolved outside of court through mediation or arbitration, partnership disputes can escalate quickly — many claims require immediate court intervention to preserve business assets and prevent further harm to the company. A business litigation attorney will know which steps to take to prevent evidence spoliation, preserve key financial and communications records, and develop a strategic position to ensure the best possible outcome.
Ultimately, swift legal action is critical, not only to enforce the partnership agreement but also to safeguard the value, stability, and long-term viability of the business.
Contact an Experienced Long Island Business Litigation Attorney
If your business partner has ignored the terms of your partnership agreement, it’s vital to take action to protect your company and financial interests. At Barnes & Barnes, P.C., our business litigation attorneys provide knowledgeable counsel and high-quality legal services to business owners across Long Island for a wide range of commercial matters, including partnership disputes. Contact us at (516) 673-0674 to schedule a consultation.
