908-679-5011
What Legal Steps Can You Take if a Business Partner Violates Their Duties?
Business partnerships are grounded in trust, mutual understanding, and clear agreements. However, when a partner violates their duties, it can cause significant disruptions and harm the business.
In New Jersey, business owners facing a breach of duty by a partner have specific legal options available to protect their interests and ensure the business remains viable. Here’s a breakdown of the legal steps you can take if a business partner violates their duties in New Jersey.
Step 1: Review the Partnership Agreement
The first and most important step when dealing with a breach of duty is to review the partnership agreement. In New Jersey, a partnership agreement typically outlines each partner’s roles, responsibilities, and fiduciary duties. Fiduciary duties include acting in the best interests of the business and not engaging in self-dealing, misusing company resources, or making decisions that benefit one partner at the expense of the business.
Your partnership agreement should also detail the steps to be taken in the event of a breach.
Step 2: Discuss the Issue with Your Partner
Before escalating the issue to legal action, it’s often best to approach your partner directly to discuss the breach. Misunderstandings can sometimes lead to perceived violations of duties, so a calm and professional conversation may help resolve the issue without legal intervention.
However, if the breach is serious, such as fraud, mismanagement, or breach of trust, and you are unable to reach a resolution, it’s time to consider more formal legal steps. Document all communications, as this may be valuable if the situation progresses to a legal dispute.
Step 3: Demand Accountability in Writing
If informal discussions do not resolve the issue, it is important to formally demand accountability from your partner. Send a written notice outlining the specific breach of duty, any evidence supporting your claims, and a request for corrective action. This written communication serves as a record and may help demonstrate your efforts to address the issue amicably before resorting to legal action.
In New Jersey, providing written notice can also be an important step in ensuring that your partner is aware of the breach and the potential consequences of continued misconduct.
Step 4: Mediation or Arbitration
New Jersey law encourages the use of alternative dispute resolution (ADR) methods like mediation or arbitration. These options allow partners to resolve disputes outside of court and can be a more cost-effective and less adversarial way to address issues.
If your partnership agreement includes a clause for mandatory mediation or arbitration, you will be required to pursue these avenues before taking the matter to court. Even if your agreement does not require it, seeking mediation may help avoid a lengthy court battle and preserve the business relationship.
Step 5: Seek Legal Action for Breach of Fiduciary Duty
If the situation cannot be resolved through informal discussions or ADR, you may need to pursue legal action for breach of fiduciary duty. In New Jersey, a breach of fiduciary duty is a serious claim and can result in significant consequences for the partner at fault.
The court may order remedies such as:
- Compensatory Damages: To cover financial losses caused by the breach.
- Punitive Damages: If the breach involved fraud, misconduct, or willful negligence.
- Removal of the Partner: In cases where the breach undermines the partnership’s ability to operate effectively, a court may order the removal of the violating partner.
Additionally, New Jersey allows for the dissolution of a partnership under certain circumstances, such as when one partner’s actions make it impossible for the business to continue.
Step 6: Consider Dissolution of the Partnership
If the breach is severe and irreparable, dissolving the partnership may be the only viable option. Under New Jersey’s Revised Uniform Partnership Act (RUPA), a partnership can be dissolved by mutual consent, through a court order, or due to an event specified in the partnership agreement.
Dissolving a partnership involves liquidating the business’s assets, paying off debts, and dividing the remaining profits or losses among the partners according to the terms of the agreement or New Jersey law. If a partner’s breach of duty has caused substantial damage to the business, they may be required to pay damages as part of the dissolution process.
New Jersey Commercial Litigation Attorneys at Herold Law, P.A. Will Resolve Your Dispute
Dealing with a business partner who violates their duties can be challenging, but knowing the legal steps available in New Jersey can help protect your interests. To learn more, contact the New Jersey commercial litigation attorneys at Herold Law, P.A. Call 908-679-5011 or contact us online for a consultation. Located in Warren, New Jersey, we serve clients in Somerville, Morristown, and across New Jersey.
