Ideally, you and your business partner worked out a written agreement that defines the expectations of your partnership. Your agreement likely outlines how you will share the duties, expenses and profits of your New Jersey business as well as how to set and adjust the company’s goals. However, does your partnership agreement say what should happen if your partner breaches the terms of your agreement?
Of course, the way you handle the breach will probably depend a great deal on the kind and severity of the violation. A minor breach may be easy to resolve, but a breach that damages the future of the business or results in financial loss for you and your other partners may require more serious steps. You may benefit from seeking sound advice for the most appropriate actions to take.
Understand the alternatives available
Your first impulse may be to expel your partner from the business. However, be cautious before taking this step. In fact, it is wise to go back to your partnership contract and carefully review its terms to see if you have the legal standing to expel your partner and if it would mean the disbanding of the partnership and the end of the business. Your partner may see the expulsion as bad faith, which may result in costly litigation. Other options following a breach of contract may include the following:
- Offering the partner financial remuneration to leave the partnership
- Filing a breach of contract lawsuit against the partner
- Seeking damages if your partner’s actions included misappropriation of company assets
- Attempting to negotiate a settlement with your partner
A settlement may follow the filing of a lawsuit and may seem more attractive once both sides face the potential of going to court against each other. It will be important to understand what is at stake from both litigation and settlement before proceeding with either. While mediation or arbitration may work for some breaches of partnership agreements, you will want to be fully prepared for the possibility that going to court offers a better chance for a more positive result.
Even if you and your partner formed your alliance with a handshake, you still have a kind of contract. It may be more difficult to defend your rights and interests without a written agreement, but you may still have options for protecting yourself and your business when your partner breaches that agreement.