Business Partnership Lawsuits: Understanding Your Legal Options

AdobeStock_38444038-300x201Business Partnership Lawsuits — Disputed Between LLC Members, Shareholders, General Partners, or Limited Partners

Nobody enters a business partnership or relationship expecting to end up in litigation, but disputes may arise that can only be resolved through a formal legal process. If you are involved in such a lawsuit, the San Jose partnership lawyers at Structure Law Group can provide you with professional advice, guidance, and representation throughout the process.

Why Partnership Lawsuits Happen

Most business partnerships are governed by some form of written contract, such as a partnership agreement, limited liability company (LLC) operating agreement, or corporate bylaws. These documents spell out the legal rights and responsibilities of the owners of the business. So when a lawsuit does arise, it is often because one party to the agreement has alleged a breach or violation on the part of another party.

Some of the more common grounds for business partnership lawsuits in San Jose and California include:

  • Breach of Contract Claims: A breach is a party’s failure to meet some contractual obligation. For example, a partner or LLC member may allege they did not receive their allocation of the business’ profits. Or a disagreement over corporate governance may lead some partners to file suit against the other partners.
  • Breach of Fiduciary Duty: All successful business partnerships depend on the loyalty, good faith, and candor of all of the partners. Indeed, as a matter of law business partners owe a fiduciary duty to the other partners. So if there is a breach of that duty, the other partners may take legal action to seek damages or an equitable remedy, such as forcing the offending partner out of the business.
  • Fraud: Partners, LLC members, and controlling shareholders of corporations also have a duty not to engage in fraud. This broadly covers any intentional misrepresentation of facts with the intent to deceive the other partners. It also includes any partner’s misappropriation or conversion of business property for personal use without the partnership’s consent.
  • Tortious Interference: Another duty that business partners have towards one another is not to interfere with any existing or prospective contracts involving the business. For example, if a partner tries to recruit or “poach” customers for a competing business while still a member of the original business, that can be considered tortious interference with the business partnership.

How to Resolve Partnership Disputes

A business partnership dispute need not be resolved through courtroom litigation. The terms of the document governing the partnership itself may provide for one or more alternate means of dispute resolution. Some common means of resolving partnership disputes include:

  • mediation with a neutral third party;
  • buying out one or more partners;
  • selling the business to new owners;
  • dissolving the business; or
  • filing for bankruptcy.

Of course, in some cases the resolution will be through courtroom litigation. If you need legal advice or representation in connection with a partnership dispute, contact SLG today to schedule a consultation. Our California partnership attorneys can assist you with all aspects of your business, including addressing any disputes that may arise between and among your partners.