Has your business partner breached your contract? What steps should you take to protect yourself and your company in this situation? Depending on the severity of the breach, you may want to expel your partner and consider legal action.
You can review all your options in this situation with our team at the Buzbee Law Firm. During your free consultation, we can get more in-depth about your rights and how to best proceed. We understand the complicated nature of business contracts and can assist you immediately.
What Constitutes a Breach of a Partnership Agreement?
Before considering the steps to take after a breach of contract, it’s essential to consider what a breach looks like. You may set up a partnership agreement when starting a business with a partner, like a limited liability company (LLC).
Generally, you include specific guidelines for the partnership in this contract. For example, you may agree to work together for a specific time. If your partner breaks the agreement by leaving the business early, they have breached the contract.
Your partner could also breach a contract by engaging in illegal activity, such as theft or fraud.
What Should You Do if Your Partner Breaches a Contract?
What steps should you take if your business partner breaches your contract? Ideally, you included an outline of the steps to take after a contract breach within the contract. If so, you’ll want to follow these steps.
However, if you did not include these guidelines or feel unsure about how to proceed, you may want to reach out to a business lawyer for personalized advice and support.
Remember that the terms of your partnership agreement may limit your options. For example, you may have agreed that you could not bring a lawsuit against your partner, even in the event of a contract breach.
Steps to Take After a Partner Breaches a Contract
Business partnerships may fail for various reasons. But invariably, the first step to take after a business partner breaches a contract involves assessing your options. The professionals generally recommend contacting a business law attorney to have them look over your contract and provide advice.
Based on the recommendations of your business lawyer, you may then decide to:
Expel Your Partner
Note that your ability to expel a partner depends on your partnership agreement. You must dissolve your partnership to expel a partner in most cases unless you addressed the possibility when designing your initial contract.
A lawyer can review your partnership agreement to determine if you have the legal ability to expel a partner or not. Note that you must follow all legal protocols when expelling a partner, as a bad-faith expulsion could result in a lawsuit from your partner.
File a Lawsuit
Depending upon your situation, a business law attorney may advise you to file a lawsuit against your partner. You may file a lawsuit against a partner you expelled from the business or against a partner who has remained in the partnership.
You may consider a lawsuit if your partner:
- Left the partnership early
- Misappropriated your assets
- Engaged in fraud
A lawsuit could allow you to secure compensation to cover the losses caused by your partner’s actions. However, lawsuits do not always represent the best option to handle a contract breach.
Discuss all your options with a lawyer before you move forward.
Seek Damages Through Liquidation
Your partnership agreement may contain a liquidated damages clause. These clauses guarantee a set amount of compensation if you become damaged by a partner’s actions or breach of contract.
However, the court does not always enforce these clauses. For example, the court may not uphold a clause that seems unreasonable. Therefore, you may want to work with a lawyer to set up the clause at the beginning of your partnership.
The court may still award you compensation if they find the liquated damages clause unfair or invalid. Learn more about this situation with a business lawyer in Texas.
Negotiate a Legal Settlement
Finally, you may want to consider negotiating a settlement with your partner. A settlement could help repair the business relationship and help you secure compensation to cover your losses. You can create a binding settlement agreement with the help of legal professionals.
In many cases, you must compromise with your partner to reach a settlement agreement, but it can save you money in the long run, allowing you to avoid court fees and come to a quicker resolution.
Keep in mind that the above steps are not all mutually exclusive. Depending on your situation, a lawyer may recommend that you pursue several courses of action. Find out more by reaching out to us for assistance.
What If You didn’t Have an Agreement with Your Partner?
We understand that not all business partners draw up official agreements for a partnership. However, you still have options if a partner acts improperly under the Texas Business Organizations Code (TBOC). The code also has solutions if you have an incomplete or partial agreement.
Section 152.211(a) allows you to move forward if your partner violates any duties to your partnership.
You can get personalized assistance discussing your options when you reach out to a lawyer for help. Don’t feel like you have to handle a breach of contract on your own in Texas.
Speak to Us if Your Business Partner Breached a Contract
What steps should you take if your business partner breaches your contract? First, reach out to a business law attorney to discuss the specifics of your situation. Then, your lawyer can help you select options to resolve the problem.
You can get started today when you reach out to the Buzbee Law Firm. Contact us online or call to speak to a member of our team.