Business partnerships are founded on trust. Unfortunately, as in all human relationships, disagreements will arise. Common conflict areas include the business’s authority structure, financial management, workload distribution, and differing visions for the company. These issues can become even more serious when one of the partners makes unsanctioned or unexpected decisions.
Working with experienced business litigation attorneys is an important next step when these business disputes cannot be resolved in-house. These professionals can help guide you through mediation, negotiation, and litigation processes while protecting your interests.
Understanding Partnership Disputes
A shared sense of vision, values, and goals often brings business partners together at the start. The excitement around the new endeavor can blunt the effects of personal differences. However, as time passes and the business grows, the founding partners may disagree about how to move forward or deal with changing priorities, markets, and other external pressures. These disputes can escalate if not addressed promptly.
A common area of contention is the allocation of responsibilities and decision-making authority. As the business evolves, partners may have differing opinions on leadership roles, management styles, and the division of labor.
Financial disagreements are another major source of partnership disputes. Partners may have different expectations regarding profit distribution, reinvestment strategies, or handling business expenses. Perceived inequities in compensation can also fuel conflicts.
Personal issues may also impact the partnership. A partner dealing with outstanding debts may be tempted to use business funds as a bailout or leverage intellectual property for personal gain. Such fraudulent actions not only compromise the financial stability of the business but also permanently damage the trust and integrity of the partnership.
The Legal Framework and Remedies in Partnership Disputes
Disputes in business partnerships range in size and severity. In some cases, a few sessions with a mediator are all that is needed to get the business back on track. However, more serious disputes may require formal investigation and litigation.
Breach of Contract in Partnership Disputes
Breach of contract disputes often arise around three issues: ownership, management, and compensation. Ownership issues may stem from disagreements around the distribution of shares or control over assets. When a partner comes on board after the business’s founding, their ownership status may be unclear. Management disagreements often revolve around decision-making powers and responsibilities. Failing to adapt the organizational structure to business growth can lead to such confusion. Compensation is another common place for conflict and involves disagreements over profit sharing, salary, or reimbursements.
Identifying a breach of contract in a business partnership involves analyzing the partnership agreement and comparing its terms to the actions of the partners. Evidence of a breach is frequently found in financial records, day-to-day communications, and witness testimony.
The path to resolving a contractual dispute begins with negotiation and mediation. Guiding the partners through a joint discussion outside of court is often shorter, less stressful, and less expensive than litigation. However, if these tactics fail, a formal lawsuit pointing out the breach and demonstrating the resulting damages may be necessary.
Unjust Enrichment Claims
Unjust enrichment happens when a contractual arrangement is not in place and one party in the partnership receives a benefit at the expense of another. These claims typically arise when a shareholder takes actions that benefit themselves while harming other shareholders such as:
- Misappropriating funds
- Exploiting corporate opportunities
- Receiving excessive compensation
To build an unjust enrichment claim, the plaintiff must demonstrate the defendant benefited at the plaintiff’s expense in an unjust manner. A partner using company resources for personal gain would fall into this category. Resolving the issue will typically require some form of restitution on the part of the defendant.
An unjust enrichment claim can be an effective strategy for handling some shareholder disputes. The harmed parties seek compensation by demonstrating an unfair advantage. A positive resolution will restore balance and fairness within the company. To improve the process, an experienced legal counsel can help in gathering evidence and negotiating a fair settlement.
Fraudulent Actions
While some partnership disputes may come from a lack of organizational clarity or poor communication, intentional fraudulent actions are more serious. A breach of fiduciary responsibilities through actions such as embezzlement, insider trading, or falsifying records has heavy legal consequences. The damage caused by a partner in this case may have long-lasting effects on the health of the company.
Business fraud involves a wide range of dishonest activities designed to personally benefit the actor. Common types include:
- Financial statement fraud
- Asset misappropriation
- Misrepresentation
- Patent or trademark infringement
- Embezzlement
Safeguarding against fraudulent activities is essential for the long-term health of a business. Establishing clear authorization protocols and a well-defined organizational structure removes opportunities for fraud. Regular audits will detect irregularities and ensure compliance with regulatory requirements. Establishing a culture of ethical behavior through written policies and regular training can also serve as a strong preventative measure.
Utilizing Negotiation, Mediation, and Litigation for a Fair Resolution
In most cases, keeping partnership disputes out of the court system is preferable for all parties involved. At Landsman Saldinger Carroll, we take a broad approach to resolution beginning with a thorough assessment of the situation. From there, we can determine the best way forward to settle the conflict fairly.
- Negotiation: We can represent and support you as you meet with your business partner and work out a settlement together.
- Mediation: An attorney can act as a neutral third party, helping to mediate a settlement.
- FINRA Arbitration: In the financial industry, a FINRA arbitration process is a more expedient solution to disputes than going to court when applicable. Landsman Saldinger Caroll has experienced FINRA arbitration attorneys on our team.
- Litigation: In some cases, there is no option except filing a lawsuit and going to court. As business litigation lawyers, we can advocate for your cause.
Partnership disputes are common features of the business landscape. However, a disagreement does not need to result in a permanent split or the dissolution of your company. Unless there has been intentional illegal activity, many disputes can be resolved through negotiation and mediation.
Wherever you are in a business partnership dispute, the attorneys at Landsman Saldinger Caroll can assist you. Whether you need help with negotiation, mediation, or litigation, we will advocate for your cause. Contact us today at 312-219-4650 to work with our team.
